Never ever use a broker where you can't pick up the phone and talk to a real human being. They all have zero commissions now so there's no excuse.
A real brokerage should, in my opinion, and some sort of duty to act in the best interest of its clients.
A brokerage should not have huge backlash because its users got margin called, and those users didn't even know what a margin call was.
They should not have huge backlash because its users stop-loss orders were triggered, and then executed at a lower price.
This is just confusion that shouldn't exist, because a reasonable brokerage shouldn't be luring people into these risky positions just to make a buck on the sale.
Would you have preferred the alternative where Robinhood risks exploding, has no liquidity, triggers a rush where everyone tries to get their stock out of Robinhood at the same time, fails, and every Robinhood customer is stuck waiting on SPIC for some undetermined amount of time?
Or would you have preferred the alternative where Robinhood didn't allow you to sell either? And then it the stock went down during that time, you can't try to get out?
Robinhood is a shitty company for a lot of reasons, but preventing themselves from being over-extended into bankruptcy isn't really one of those reasons.
Nobody is complaining Robinhood disabled naked calls/puts on volatile stocks.
How is not illegal for Robinhood to disable cash accounts from buying stocks?
Your cash is transferred and deposited. If the stock price crashed, it crashed, investors still own the stocks with their cash paid.
> Your cash is transferred and deposited.
When you open a new account, and start a transfer from your bank, that is not instantaneous. "Cash" doesn't magically appear in Robinhoods' account. Until that deposit clears, you are effectively operating on margin.
If you recently sold something on Robinhood, and want to buy something else, "cash" isn't in your account yet, because that original sale hasn't settled. Robinhood is papering over that as well. This one in particular I'm not saying they shouldn't paper over, since I believe it's less of a risk.
But each of these "Robinhood covering your unsettled positions" adds a little bit of risk. This risk adds up.
The suggestion of Robinhood only letting people trade with cash that is fully settled into their accounts would completely swap the underlying paradigm of Robinhood's product.
Even so, new trades you want to make would have to settle. And as discussed elsewhere, Robinhood has to funds and deposits to cover potential risk associated with those trades until they settle.
There is a lot under the hood that is abstracted away by Robinhood, and now those intricacies are leaking out (and completely mis-understood, because one of the premises of Robinhood's product is that you shouldn't have to understand, or even know about, them)
1. No, not all Robinhood accounts are margin accounts, a simple google search tells you that: https://robinhood.com/us/en/support/articles/robinhood-accou...
2. Yesterday, all Cash accounts were disabled from trading GME, that’s a fact and please defend that again.
3. Trading with a margin accounts and trading on margin is different. I can have a margin account and borrow $0 on margin to trade.
I don't think I said that; I said that Robinhood papers over the differences in a way such that the end user doesn't explicitly interact in a hugely different way, and it's not explicitly clear what kind of account you have.
I did imply that new accounts are all technically margin accounts. The link you provided seems to prove that?
> When you sign up for a new account, you’ll automatically start with a Robinhood Instant account, which is a margin account.
> 2. Yesterday, all Cash accounts were disabled from trading GME
Yes, but I didn't say that this was because they were "margin". I said that this appears to be because Robinhood, as the broker, still requires additional cash on hand to cover these positions until they settle. This is a different thing than the margin issue.
> 3. Trading with a margin accounts and trading on margin is different.
Yes you're right. But a new user that just signed up may be thinking they are using a cash account, but it's actually a margin account. It also appears that you have to manually downgrade from an "Instant" (margin) account, to a "Cash" account[0], and I highly suspect that most people didn't do that, and thus are still using a margin account.
[0] (yes, it is really bad that this link is broken at the moment) https://robinhood.com/us/en/support/articles/downgrading-fro...
But I am against what they did to the cash accounts (and margin accounts not borrowing money to trade). It seems that you think it's a small portion of all of the accounts, which I disagree.
Even if it's only a small portion, what Robinhood did to these cash accounts was unprecedented and unacceptable as a broker.
For point 2, I think you are referring to the clearing process. Brokers were liable to cover if clearing houses do not[0]. But that is Robinhood's liquidity issue and not does justify Robinhood disabling cash accounts from buying stocks.
[0]https://www.youtube.com/watch?v=7RH4XKP55fM&feature=youtu.be
> But that is Robinhood's liquidity issue and not does justify Robinhood disabling cash accounts from buying stocks.
Robinhood having a liquidity issue 100% justifies them not offering services that they may not be able to actually cover. Because the alternative is way, way worse. You want Robinhood to just... make up money that they owe people but don't actually have? I'm fairly confident that financial institutions can't just make up numbers in order to manipulate their way into compliance.
I very much dislike Robinhood as a company, but what you're suggesting doesn't make sense.
That’s exactly the point the parent commenter is making: there is nothing to cover for stock purchases on accounts with a balance. No liquidity issues can arise from that. You can say it’s easier to just turn off everything at once, but there is no actual reason to prevent stock purchases without margin, the buyer bears all risk.
There would have to be an insane ratio of meme-stock trading vs SP500 for GME alone to impact their cash requirements - if that’s the case it seems they dug their own grave...
But, if you're a buy and hold investor, it shouldn't be an issue.
My gut feeling is that RH is designed to maximize the number of trades people make, as a core "engagement" metric. A few examples: 1) The UI is designed to induce in the user the feeling that something is happening, always - the graphs are not to scale, so small swings in price appear bigger than they really are. 2) The "Top 10" and community trends feed will trigger FOMO, and again will likely result in more day-trading.
In all, RH has too much "clutter" and noisy notifications for a buy and hold investor. Most platforms are now commission-free.