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Comment by downrightmike | Hacker News Reader

I have a RH, and yeah when you sign up they tell you what margin is and you can choose to not use it as it is riskier. As this is just a 'see what happens' use case for me, I didn't elect margin. And well this is what happens. The predatory part is just giving it out at all to low funds retail traders.

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I don't remember seeing such a notice when I signed up, but I've been on the platform for a long time so maybe thats new(ish)?

I’ve had an account since Feb. 2015 and don’t remember seeing an in-app notice either. It’s certainly possible I saw it but don’t remember now.

I checked back through my email archives and found the announcement email “Introducing Robinhood Instant” from Feb. 23, 2016.

From the small print terms at the bottom of the email:

“Robinhood Instant is implemented as a limited margin account designed to allow customers to purchase with unsettled funds. Robinhood Instant is free, which means customers will not be charged interest. Further, Robinhood Instant accounts will not be able to purchase securities with more than the account cash amount (leverage) or engage in short selling.”

I signed up on Tuesday and saw no such notice.

99% of the people who use RH could not use it if RH didn't give you "implicit margin". The "democratization" is centered around it

And I mean if you want, ask RH and they'll downgrade to to a cash account... just be ready for T+2 and no options trading

https://robinhood.com/us/en/support/articles/options-investi...

> NOTE: If you start options trading in your Cash account, we’ll automatically upgrade you to an Instant account.

If Robinhood only had covered options you'd be right back to: not supporting the way people are using it to enable all this.

In fact, imagine if they didn't do this, all the new people who tried to enter GME would have had to wait 2 days to enter, and much fewer people would have had access to options

Ironically I actually think it might have stopped this dead in its tracks by damping the influx of cash

> And I mean if you want, ask RH and they'll downgrade to to a cash account... just be ready for T+2 and no options trading

You can do options trading on a cash account. You can only do covered options, but honestly that's probably a good restriction for most.

Edit: Actually can you show me where RH even says you can trade covered options without Instant? I've only found evidence to the contrary, I think you're lying.

https://robinhood.com/us/en/support/articles/options-investi...

> NOTE: If you start options trading in your Cash account, we’ll automatically upgrade you to an Instant account.

Maybe if you've downgraded they won't upgrade you, but it's neither here nor there, covered options aren't what have allowed this to happen

If Robinhood only had covered options you'd be right back where I said it'd be: not supporting the way people are using it to enable all this.

> NOTE: If you start options trading in your Cash account, we’ll automatically upgrade you to an Instant account.

HAHA oh my god this is terrifyingly predatory. It says "automatically", but I hope that there is a notice at least. Even if someone went to the effort to make sure that they understood their account type, it would just... change out from under them.

This is sort of like accidently using a premium feature in some SaaS platform, and being automatically upgraded into a free trial without knowing.

I mean I do think that's just legacy wording

You start with Robinhood Instant if your account was made any time in the last 5? or so years?

And things people know RH for won't work without it (like instant deposits and not waiting for settlement)

So options trading was actually added after most accounts had already if not all accounts were Instant

Really the only reason people ever go to Robinhood Cash these days is trying to get around PDT restrictions... but they inevitably realize the entire experience they've been introduced to ran on margin

I read it more as "If you have manually downgraded to a cash account, and then go into the "Trade Options" page and buy something, we'll automatically change your account type so that it works"

But you're right that it could just be legacy wording.

I'm not talking about Robinhood specifically but general rules & regulations (see eg https://www.fool.com/the-ascent/buying-stocks/margin-account... ). RH specifically may have their own constraints beyond what's necessary, though. In which case get yourself a better brokerage.

Multiple brokerages have similar restrictions.

And the discussion is about Robinhood. Any reasonable person reading your comment would rightfully assume you're talking about Robinhood.

I think the way it works now is great, being able to go short on naked options with a proper margin maintenance is way smarter than restricting everyone to go long on options or only allow people to sell calls on covered options (which kind of defeats the purpose of a bearish position when you are required to hold the deliverables).

A bearish position is to be long on puts. You don't need to write options, especially naked options which are usually the highest tier of access on every broker and require extra agreements.

If you only go long on options, theta is eventually going to catch up with you.

For a mass-market low-education target demographic? The defaults matter here.

Retail investors shouldn't be restricted from having such capabilities, but that doesn't mean it should be the default

Maybe I'm missing something, but what's the problem with this being the default?

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