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Casino have truly insane margin on the money you play with them (and equally truly insane revenues). When they lend you money, they know exactly how much of th

Casino have truly insane margin on the money you play with them (and equally truly insane revenues). When they lend you money, they know exactly how much of that will go back to their hands soon (and they have a ton of cash flow to cover). Robinhood is effectively lending money with little guarantee to take anything back and no source of income.

koolba 10y ago
They don't charge commission. They do receive payments for order flow. If you don't pay back your margin they'll come after you like any other debt collector. There's nothing special about it.
- kcorbitt 10y ago
  Actually, if your investments fall in value to the point where it looks like your account is in danger of becoming insolvent, they'll likely immediately sell as many of your assets as it takes to make up the difference, locking in your leveraged losses. This is known as a margin call, and it's very unpleasant to be on the receiving end of one. The actual risk to the broker is minimal -- they just have to make sure to trigger the sale at a point where the value of all of your holdings (not just what you purchased on margin) is still greater than what you owe them.
  - kgwgk 10y ago
    I think you may end owing money to the broker, if the margin call cannot be executed in a clean way. That has to be even more unpleasant.
  - koolba 10y ago
    Exactly. They have the right to liquidate to protect themselves at any time and if it doesn't cover your margin, your still on the hook for the rest.
sigstoat 10y ago
> Robinhood is effectively lending money with little guarantee to take anything back and no source of income. i have not looked into robinhood's margin offering, so maybe it's very different, but in my other brokerage accounts, margin works something like this: i buy $10k of SPY. after the trade closes, the broker says "ok, you own $10k of SPY, and that's good for another $5k of margin." so then i can go buy another $5k of whatever i want. i pay 9% interest or so on that $5k. if SPY drops in value "enough", the broker can on a moment's notice, sell as much of the SPY as they want to cover my debts. so... they've got a great guarantee they can take it all back.
- kogepathic 10y ago
  > so... they've got a great guarantee they can take it all back. And what of the case where the value of your SPY position falls below your $5k+interest debt to them? Edit: derp. A margin call would cover this.
  - deleted 10y ago
    [deleted]

koolba 10y ago

They don't charge commission. They do receive payments for order flow. If you don't pay back your margin they'll come after you like any other debt collector. There's nothing special about it.

kcorbitt 10y ago
Actually, if your investments fall in value to the point where it looks like your account is in danger of becoming insolvent, they'll likely immediately sell as many of your assets as it takes to make up the difference, locking in your leveraged losses. This is known as a margin call, and it's very unpleasant to be on the receiving end of one. The actual risk to the broker is minimal -- they just have to make sure to trigger the sale at a point where the value of all of your holdings (not just what you purchased on margin) is still greater than what you owe them.
- kgwgk 10y ago
  I think you may end owing money to the broker, if the margin call cannot be executed in a clean way. That has to be even more unpleasant.
- koolba 10y ago
  Exactly. They have the right to liquidate to protect themselves at any time and if it doesn't cover your margin, your still on the hook for the rest.

sigstoat 10y ago

> Robinhood is effectively lending money with little guarantee to take anything back and no source of income. i have not looked into robinhood's margin offering, so maybe it's very different, but in my other brokerage accounts, margin works something like this: i buy $10k of SPY. after the trade closes, the broker says "ok, you own $10k of SPY, and that's good for another $5k of margin." so then i can go buy another $5k of whatever i want. i pay 9% interest or so on that $5k. if SPY drops in value "enough", the broker can on a moment's notice, sell as much of the SPY as they want to cover my debts. so... they've got a great guarantee they can take it all back.

kogepathic 10y ago
> so... they've got a great guarantee they can take it all back. And what of the case where the value of your SPY position falls below your $5k+interest debt to them? Edit: derp. A margin call would cover this.
- deleted 10y ago
  [deleted]