5 ms·

Yes, that this bug has existed so long after it was used and publicized is scary. If it goes on too long, Robinhood becomes insolvent because they absorb the lo

Yes, that this bug has existed so long after it was used and publicized is scary. If it goes on too long, Robinhood becomes insolvent because they absorb the losses but pass the winnings on to their customers. Which leads me to believe this has already happened and Robinhood is falling apart organizationally as they realize they don't have enough money to cash everyone out. Which in turn means they need to keep it quiet or else there will be a "run on the bank".

aristophenes 7y ago
Taking this line of thinking a bit further, they may have been trying to get more money from investors, and if they haven't already, now these stories are out they might not be able to. So I wouldn't be surprised if Robinhood freezes all accounts over the next week, and the SIPC gets involved. What SIPC does: https://www.sipc.org/for-investors/what-sipc-protects https://www.sipc.org/for-investors/what-sipc-protects And thankfully Robinhood Financial LLC of Menlo Park CA is a member: https://www.sipc.org/list-of-members/R https://www.sipc.org/list-of-members/R I would assume there is almost no one with over $500,000 using Robinhood, but if so, you better get your money out now.
- mrep 7y ago
  They just raised 50 million dollars a week ago according to crunchbase [0] and I doubt they have blown through that already. [0]: https://www.crunchbase.com/funding_round/robinhood-series-e--6fdfff2a https://www.crunchbase.com/funding_round/robinhood-series-e-...
  - dkural 7y ago
    It takes only 50 customers like the guy above to loose their money to some ill-conceived put option.
    - drspacemonkey 7y ago
      Considering the posters of /r/wallstreetbets have a leader board going to see who can glitch the most leverage, it's well within the realm of possibility https://old.reddit.com/r/wallstreetbets/comments/drt5tr/guh_of_fame_2019/ https://old.reddit.com/r/wallstreetbets/comments/drt5tr/guh_...
    - mafm 7y ago
      Unless I've missed something, it would only require 1 customer with a serious risk appetite.
      - aristophenes 7y ago
        I believe the phrase is a high "Personal Risk Tolerance"
manigandham 7y ago
Robinhood has changed their app several times based on users finding various bugs and workarounds that affected the trades they can place. Another famous case is user "1ronyman" who opened up a massive options spread that had a potential loss of $500k which was 50x bigger than his account [1]. Proper risk calculations would never let him make the trade in the first place but Robinhood did and likely had to take the loss. It shows the dangers of playing fast and loose as a "tech company" in heavily regulated and complex environments like fintech. 1. https://www.reddit.com/r/explainlikeimfive/comments/ah578l/eli5_box_spreads_and_u1ronyman_50k_loss_on/ https://www.reddit.com/r/explainlikeimfive/comments/ah578l/e...
- sdan 7y ago
  1ronyman said just today that he isn't going to pay RH anything. They haven't forced him to do so at all. He went from $250,000 to $50,000 in debt and as I said, isn't going to pay anything (as far as I know).
  - aristophenes 7y ago
    Would you mind linking to that? Thanks
    - manigandham 7y ago
      https://www.reddit.com/r/wallstreetbets/comments/dq9hiv/weekend_discussion_thread_november_13_2019/f6iqoyl/ https://www.reddit.com/r/wallstreetbets/comments/dq9hiv/week...
  - deleted 7y ago
    [deleted]
jklinger410 7y ago
>If it goes on too long, Robinhood becomes insolvent because they absorb the losses but pass the winnings on to their customers. Companies rarely absorb losses due to "abuse" by their users. Even when it is entirely the fault of the corp. I'm sure they have small print somewhere that absolves them of all responsibility for trades that do not meet some arbitrary guidelines. It would likely require a class action lawsuit by the users, and get dragged out for years. They have more to worry about from the SEC on this then paying their users, if history is a predictor for this.
- zajd 7y ago
  Where exactly do you think the money is going to come from? These people are taking $2k and making trades that are losing $500k. They never had $500k. Robinhood is still out of that money, regardless of their guilt or whether they are convicted/sued/etc. There is no money to chase after. That's why this sort of thing is so insane.
  - ryandrake 7y ago
    What happens in a normal brokerage when someone, despite the brokerage’s risk management checks, manages to get a margin deficiency that they cannot possibly rectify by liquidating their holdings or depositing cash? Serious non-rhetorical question, I have no idea...
    - barkingcat 7y ago
      Literally they go out of business. Best example is Barings Bank: "The bank collapsed in 1995 after suffering losses of £827 million (£1.6 billion today) resulting from fraudulent investments, primarily in futures contracts, conducted by its employee Nick Leeson, working at its office in Singapore. " https://en.wikipedia.org/wiki/Barings_Bank https://en.wikipedia.org/wiki/Barings_Bank
      - zenmaster10665 7y ago
        Not quite the same situation, but your point is still valid. Leeson was hiding losses fraudulently in error accounts as a malicious internal actor. In these cases, clients are being extended credit they likely cannot underwrite, leaving RH exposed and liable to any losses theirselves.
dbuder 7y ago
They aren't placing the trades on the market, they are market making internally - they are not losing money from this until a large group of people win and cash out.

aristophenes 7y ago

Taking this line of thinking a bit further, they may have been trying to get more money from investors, and if they haven't already, now these stories are out they might not be able to. So I wouldn't be surprised if Robinhood freezes all accounts over the next week, and the SIPC gets involved. What SIPC does: https://www.sipc.org/for-investors/what-sipc-protects https://www.sipc.org/for-investors/what-sipc-protects And thankfully Robinhood Financial LLC of Menlo Park CA is a member: https://www.sipc.org/list-of-members/R https://www.sipc.org/list-of-members/R I would assume there is almost no one with over $500,000 using Robinhood, but if so, you better get your money out now.

mrep 7y ago
They just raised 50 million dollars a week ago according to crunchbase [0] and I doubt they have blown through that already. [0]: https://www.crunchbase.com/funding_round/robinhood-series-e--6fdfff2a https://www.crunchbase.com/funding_round/robinhood-series-e-...
- dkural 7y ago
  It takes only 50 customers like the guy above to loose their money to some ill-conceived put option.
  - drspacemonkey 7y ago
    Considering the posters of /r/wallstreetbets have a leader board going to see who can glitch the most leverage, it's well within the realm of possibility https://old.reddit.com/r/wallstreetbets/comments/drt5tr/guh_of_fame_2019/ https://old.reddit.com/r/wallstreetbets/comments/drt5tr/guh_...
  - mafm 7y ago
    Unless I've missed something, it would only require 1 customer with a serious risk appetite.
    - aristophenes 7y ago
      I believe the phrase is a high "Personal Risk Tolerance"

manigandham 7y ago

Robinhood has changed their app several times based on users finding various bugs and workarounds that affected the trades they can place. Another famous case is user "1ronyman" who opened up a massive options spread that had a potential loss of $500k which was 50x bigger than his account [1]. Proper risk calculations would never let him make the trade in the first place but Robinhood did and likely had to take the loss. It shows the dangers of playing fast and loose as a "tech company" in heavily regulated and complex environments like fintech. 1. https://www.reddit.com/r/explainlikeimfive/comments/ah578l/eli5_box_spreads_and_u1ronyman_50k_loss_on/ https://www.reddit.com/r/explainlikeimfive/comments/ah578l/e...

sdan 7y ago
1ronyman said just today that he isn't going to pay RH anything. They haven't forced him to do so at all. He went from $250,000 to $50,000 in debt and as I said, isn't going to pay anything (as far as I know).
- aristophenes 7y ago
  Would you mind linking to that? Thanks
  - manigandham 7y ago
    https://www.reddit.com/r/wallstreetbets/comments/dq9hiv/weekend_discussion_thread_november_13_2019/f6iqoyl/ https://www.reddit.com/r/wallstreetbets/comments/dq9hiv/week...
- deleted 7y ago
  [deleted]

jklinger410 7y ago

>If it goes on too long, Robinhood becomes insolvent because they absorb the losses but pass the winnings on to their customers. Companies rarely absorb losses due to "abuse" by their users. Even when it is entirely the fault of the corp. I'm sure they have small print somewhere that absolves them of all responsibility for trades that do not meet some arbitrary guidelines. It would likely require a class action lawsuit by the users, and get dragged out for years. They have more to worry about from the SEC on this then paying their users, if history is a predictor for this.

zajd 7y ago
Where exactly do you think the money is going to come from? These people are taking $2k and making trades that are losing $500k. They never had $500k. Robinhood is still out of that money, regardless of their guilt or whether they are convicted/sued/etc. There is no money to chase after. That's why this sort of thing is so insane.
- ryandrake 7y ago
  What happens in a normal brokerage when someone, despite the brokerage’s risk management checks, manages to get a margin deficiency that they cannot possibly rectify by liquidating their holdings or depositing cash? Serious non-rhetorical question, I have no idea...
  - barkingcat 7y ago
    Literally they go out of business. Best example is Barings Bank: "The bank collapsed in 1995 after suffering losses of £827 million (£1.6 billion today) resulting from fraudulent investments, primarily in futures contracts, conducted by its employee Nick Leeson, working at its office in Singapore. " https://en.wikipedia.org/wiki/Barings_Bank https://en.wikipedia.org/wiki/Barings_Bank
    - zenmaster10665 7y ago
      Not quite the same situation, but your point is still valid. Leeson was hiding losses fraudulently in error accounts as a malicious internal actor. In these cases, clients are being extended credit they likely cannot underwrite, leaving RH exposed and liable to any losses theirselves.

dbuder 7y ago

They aren't placing the trades on the market, they are market making internally - they are not losing money from this until a large group of people win and cash out.