They could have just completely frozen trades of these volatile stocks then? Instead, they only blocked out buying these stocks and still allowed selling. Did they not really think through the implications of this action?
"Robinhood sold me a stock that was part of a huge bubble, and then they wouldn't let me sell it"
They always had a huge lever but it was not to be used so soon to help their friends. I now hope it becomes deserted. At least I closed my own account after this.
Because they need to post collateral for every trade that they execute but which hasn't yet settled, and they don't have enough collateral to sustain the concentrated trading volumes they've been processing.
... and making money on every trade, win or lose. Important not to forget that.
Or, maybe I'm misunderstanding the issue. Maybe it's fully due to the higher clearing house margin requirements for the higher volatility stocks.
Clearing collateral requirements vary between 2 and 100%. That means $10bn of trades in one name can require the same amount of capital as $200mm of trades in another.
I assume Robinhood also blocked shorting GME. As such, it wasn't blocking buying per se. It was blocking the opening of new positions, long or short.
That's very different from blocking someone from exiting a position that you sold them.
I couldn't sell and the stock went down = real loss
Generally you are only liable for actual losses in court. So stopping the purchase of GME comes with little liability while stopping the sale could open them up to lots of liability.
They can't freeze all trades since they are not the NYSE, so trading will still happen, just not for any of their customers.
It just seems like maybe in this specific once-in-a-lifetime situation, maybe this doesn't apply? The decision to freeze all trades seems more "neutral" than freezing just buying which perceptively seems to favor short sellers?
That's the point: they are not, so they shouldn't act like it.
That isn't the case, they inhibited opening new positions but not closing them.
So if you were short you could but to close.
You can make money as a retail investor. Just avoid meme stocks and stick with more stable titles.
The only reason this situation with GME happened is because no one person has power to control what investor decide to buy and sell (with this perhaps being one of the few exceptions I've ever come across). I don't really understand where this claim that retail investors can't take the opposite side of a hedgefund's trade is coming from. Hedgefunds that are over-levered go bankrupt all the time because retail investors along with professionals take the other side of the trade. It's worth remember a lot of hedge funds lost money shorting TSLA this last year too and that trade was largely retail driven.
I also think a lot of people are being really spiteful. I understand why hedgefunds get a bad rep, especially after all that happened during the GFC, but most hedgefunds are doing honest business. I don't really understand why Melvin Capital deserves to be put out of business and for their employees to lose their jobs because of what some other hedgefunds have done in the past.
You don't have to use a PFOF flow broker – in-fact I'd advise against it. But it's kind of a win-win. You get to make "free" trades and the market makers get to make a couple of cents. PFOF is what has enabled this boom in retail trading. The biggest benefices have arguably been retail traders.
Also not all hedge funds are market makers.
> privatizing the profits and distributing the losses if they fail
What are you referring to exactly? I never know what people are referring to when they say this because hedge funds don't generally get bailed out by the government, although they do get bailed out by other companies from time to time.
Perhaps you're referring to the banks that got bailed out during the GFC? Or hedge funds taking small business loans from the government in 2020? But in that case US citizens got bailed out last year too in the form of increased unemployment benefits, stimulus checks and mortgage forbearance.
But like I said, I don't really understand why people are blaming random hedgefunds for the role some hedgefunds played in the GFC.
> Networking with other billionaires on insider information?
Right, but this is illegal. There is regulation to prevent this. You're free to do this too if you're willing to risk getting caught. I see retail investors post about their inside trades all the time on Reddit.
That is much worse than not being allowed to buy the stock.
I can't imagine the backlash if the completely froze the stocks while the market kept going.