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If you're after a more interesting trade on reddit thread then ir0nymans box spreads are legendary [1]. Invests $5k and proceeds to turn that into -$57k and en

If you're after a more interesting trade on reddit thread then ir0nymans box spreads are legendary [1]. Invests $5k and proceeds to turn that into -$57k and ends up banning box spreads on Robin Hood. 1. https://www.marketwatch.com/story/trader-says-he-has-no-money-at-risk-then-promptly-loses-almost-2000-2019-01-22 https://www.marketwatch.com/story/trader-says-he-has-no-mone...

toomuchtodo 7y ago
I work in risk management in financial services (and also a /r/wsb lurker, because who doesn't like a little excitement in their life), and this is my absolute favorite story [1] to share about the tech industry running head long into a regulated industry where real dollars are at stake. Not only did Robinhood ban box spreads [2], there were additional risk management positions open the next day on their career site. It cost them at least $100k, which is lucky for them! They extended /u/1R0NYMAN almost $300k in credit (not traditional margin, but counterparty/assignment risk) inadvertently, and the user pulled their remaining $10k cash out while settlement was in flight for the $58k loss. Traditional brokers have no issue automatically managing the risk of this type of option trade, and if something goes sideways they will call you if you exceed trade risk limits. It's not quite Knight Capital [3], but it's still a fun failure/risk management lesson. [1] https://www.reddit.com/r/wallstreetbets/comments/aeqcvt/i_dont_know_when_to_stop/ https://www.reddit.com/r/wallstreetbets/comments/aeqcvt/i_do... (Original wsb thread) [2] https://en.wikipedia.org/wiki/Box_spread_(options) https://en.wikipedia.org/wiki/Box_spread_(options) [3] https://www.theregister.co.uk/2012/08/03/bad_algorithm_lost_440_million_dollars/ https://www.theregister.co.uk/2012/08/03/bad_algorithm_lost_...
- ssully 7y ago
  What ended up happening to the guy? Did he have to pay that $53k?
  - deleted 7y ago
    [deleted]
  - poooogles 7y ago
    Check his post history, he's still very active on reddit. He's rightfully pretty cagey about it from what I remember. For all parties it's probably best if they just ignore it and pretend it never happened. Robin Hood is liable to some extent as they didn't highlight the risk in the trade.
    - duxup 7y ago
      Reminds me of a banking customer I once worked with. A very complex set of conditions occurred across numerous systems that was legitimately unpredictable. A system I supported looked like it was giving back false data in a seriously bad way that may have resulted in inaccurate data / data loss that may have been undetectable for a long time ... catastrophic if true. All the evidence was from some testing they did, but it lined up with what was seeing as "bad data" in a way that seemed rock solid. Despite all the evidence from their testing it just made no sense to me that what they claim was occurring was in fact occurring based on my experience, and what my own engineering folks I worked with said. So I proposed a test that was pretty laborious but also would absolutely answer a lot of questions. The banking folks being good guys were all for it as they were inundated with executive pressure as there was a real possibility that there were regulatory implications, possibly enormous. So anyway we run the test and everyone reports what they see along the chain of networking equipment and data and so forth. And it comes back completely unexpected nearly every step of the way. It also clearly points to what was a fundamentally bad design an some misunderstandings all along the way. The conference call ended with the bank "We're going to a breakout session with the executive team, please stand by." A few hours later they told us we could go. Thankfully no data damage was done, it was possible someone really fucked up as far as regulatory stuff but it really depended on your POV, and the events were highly unusual / unpredictable. No idea if the bank ever reported it to the feds. Nobody talked about it after that, just as you noted, everyone pretended nothing happened.
  - u10 7y ago
    wouldn't be surprised if they washed their hands of it and just ate the loss. It's a sticky situation and the client may have damages due to how KYC was conducted and the forced closure of the position. Also, the SEC would definitely be an interested party if this went any further.
  - FDSGSG 7y ago
    Based on his post history they closed the account and never contacted him, but who knows what they might do in the future. Perhaps the debt can/will be sold to a collector at some point? https://www.reddit.com/user/1R0NYMAN https://www.reddit.com/user/1R0NYMAN
    - toomuchtodo 7y ago
      It's unlikely. They could file a FINRA and SEC complaint. It's cheaper to walk away from it on Robinhood's part. In my experience interacting with financial regulators, the conversation would not go well for RH as a broker-dealer.

toomuchtodo 7y ago

I work in risk management in financial services (and also a /r/wsb lurker, because who doesn't like a little excitement in their life), and this is my absolute favorite story [1] to share about the tech industry running head long into a regulated industry where real dollars are at stake. Not only did Robinhood ban box spreads [2], there were additional risk management positions open the next day on their career site. It cost them at least $100k, which is lucky for them! They extended /u/1R0NYMAN almost $300k in credit (not traditional margin, but counterparty/assignment risk) inadvertently, and the user pulled their remaining $10k cash out while settlement was in flight for the $58k loss. Traditional brokers have no issue automatically managing the risk of this type of option trade, and if something goes sideways they will call you if you exceed trade risk limits. It's not quite Knight Capital [3], but it's still a fun failure/risk management lesson. [1] https://www.reddit.com/r/wallstreetbets/comments/aeqcvt/i_dont_know_when_to_stop/ https://www.reddit.com/r/wallstreetbets/comments/aeqcvt/i_do... (Original wsb thread) [2] https://en.wikipedia.org/wiki/Box_spread_(options) https://en.wikipedia.org/wiki/Box_spread_(options) [3] https://www.theregister.co.uk/2012/08/03/bad_algorithm_lost_440_million_dollars/ https://www.theregister.co.uk/2012/08/03/bad_algorithm_lost_...

ssully 7y ago
What ended up happening to the guy? Did he have to pay that $53k?
- deleted 7y ago
  [deleted]
- poooogles 7y ago
  Check his post history, he's still very active on reddit. He's rightfully pretty cagey about it from what I remember. For all parties it's probably best if they just ignore it and pretend it never happened. Robin Hood is liable to some extent as they didn't highlight the risk in the trade.
  - duxup 7y ago
    Reminds me of a banking customer I once worked with. A very complex set of conditions occurred across numerous systems that was legitimately unpredictable. A system I supported looked like it was giving back false data in a seriously bad way that may have resulted in inaccurate data / data loss that may have been undetectable for a long time ... catastrophic if true. All the evidence was from some testing they did, but it lined up with what was seeing as "bad data" in a way that seemed rock solid. Despite all the evidence from their testing it just made no sense to me that what they claim was occurring was in fact occurring based on my experience, and what my own engineering folks I worked with said. So I proposed a test that was pretty laborious but also would absolutely answer a lot of questions. The banking folks being good guys were all for it as they were inundated with executive pressure as there was a real possibility that there were regulatory implications, possibly enormous. So anyway we run the test and everyone reports what they see along the chain of networking equipment and data and so forth. And it comes back completely unexpected nearly every step of the way. It also clearly points to what was a fundamentally bad design an some misunderstandings all along the way. The conference call ended with the bank "We're going to a breakout session with the executive team, please stand by." A few hours later they told us we could go. Thankfully no data damage was done, it was possible someone really fucked up as far as regulatory stuff but it really depended on your POV, and the events were highly unusual / unpredictable. No idea if the bank ever reported it to the feds. Nobody talked about it after that, just as you noted, everyone pretended nothing happened.
- u10 7y ago
  wouldn't be surprised if they washed their hands of it and just ate the loss. It's a sticky situation and the client may have damages due to how KYC was conducted and the forced closure of the position. Also, the SEC would definitely be an interested party if this went any further.
- FDSGSG 7y ago
  Based on his post history they closed the account and never contacted him, but who knows what they might do in the future. Perhaps the debt can/will be sold to a collector at some point? https://www.reddit.com/user/1R0NYMAN https://www.reddit.com/user/1R0NYMAN
  - toomuchtodo 7y ago
    It's unlikely. They could file a FINRA and SEC complaint. It's cheaper to walk away from it on Robinhood's part. In my experience interacting with financial regulators, the conversation would not go well for RH as a broker-dealer.