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Comment by ogre_codes | Hacker News Reader

> Keep in mind that Robinhood also gives everyone a margin account by default.

While this is technically true, it is not a typical margin account. People cannot invest more money than they put into their Robinhood account. In order to do that, they need to switch to RH Gold.

RH Basic: I put $100 into the account, I can buy $100 worth of stock before my funds clear. (Robinhood Instant)

RH Gold: I put $100 into the account, I can buy $200 worth of stock. (Actual effective margin)

While both of these are technically margin accounts, most people associate the term "margin investing" with the latter model which requires $2000 in the account and a deliberate choice to upgrade.

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There’s a very specific legal definition of what a margin account is.

Robinhood accounts are Regulation T (aka Reg T) margin accounts by default. They have limits, yes, but they are very much margin accounts. That’s how they make their UX work.

The point is that typical user activity will be performed on margin, transparently. The flurry of synchronized activity caused a larger than normal draw on their margin, which further strained their working capital.

Yes, there is a specific legal definition (I did elude to that in the post you replied to).

Most people don't understand that definition and when they hear "Margin account" they assume people are making leveraged transactions which is not the case. Even Robinhood's FAQ and documentation uses the more commonly understood definition of margin. One of the primary "Features" of Robinhood gold is "Access to investing on margin". https://robinhood.com/us/en/support/articles/gold-overview/

This is getting a bit pedantic. The reason people are specifying that RH accounts are margin accounts by default is because it’s relevant to the financial situation. Functionally, they are margin accounts even if the end user isn’t entirely aware of it.

> Yes, there is a specific legal definition (I did elude to that in the post you replied to).

Allude, not elude. You indirectly drew attention to it, not let it get away :)

sure thanks for the explanation. at the end of the day the user is trading with borrowed money, which is the problem.

IMO the "problem" is that RH doesn't tell you that (or at least their marketing makes it confusing at minimum). The way they describe it as an "instant bank transfer", not "we give you margin until your transfer clears". The former gives you the impression that its your money that you're trading with, while the reality is it's a margin account.

That's why a lot of people were angry. They were forced to sell GME because they were technically using margin and it got called, but they thought it was their own money from their own bank account. The optics are that RH forced them to sell GME when they didn't want to.

Well someone took their own life because they showed him a real data for the moment and it was in red and it was all over news. Either way they target amateur market.

If you do any trading at all, you want a margin account so you don't have to wait for settling before making another purchase. While technically the money is borrowed for the 2 days to make your trade, I would never considered it borrowed in the typical use of the word margin.

Yeah, this is exactly my point. What Robinhood is doing isn't particularly uncommon in the industry.

i agree, but given the number of new users onboarding to robinhood, it's very possible that they don't have enough liquidity to cover the borrowed money, even if it is slated to be 100% by cash in 2 days

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