18 ms·
Robinhood maxed out credit line last month amid market tumult
- shanxS 7y agoAs a small investor (investing around few thousand USD), how do I know which app to trust? There is Robinhood and Stash for ETFs and Stocks and then there are robot-wealth mangers like WealthFront etc. Should I always stick to big firms like Vanguard or Fidelity? Thing I don't like about firms like Vanguard and Fidelity is that you cannot buy fraction of a unit which Robinhood/Stash allow you to do. Any advice?
- _bxg1 7y agoI've been very happy with Betterment (one of the first "robo-advisors", as far as I know). I'm not aware of any options for manually trading through it (not that I really want to mess with that anyway), but for automatic-management the feature set/apps/fees all seem really good.
- a-wu 7y agoFidelity offers fractional shares now: https://www.fidelity.com/trading/fractional-shares https://www.fidelity.com/trading/fractional-shares
- shanxS 7y agoOh Great! thank you!
- smeyer 7y agoHaven't both Vanguard and Fidelity started supporting fractional shares? E.g. https://www.fidelity.com/trading/fractional-shares https://www.fidelity.com/trading/fractional-shares
- jermaustin1 7y agoI know Vanguard does on Vanguard ETFs and MFs when you have dividend reinvest on, but I don't know about other scenarios.
- atombender 7y agoM1 is the only one that has full support for fractional share trading, I believe. Fidelity has started to offer fractional shares, but it has some limitations: Only market and limit orders, only trades through the basic trade ticket in the mobile app, limited to NYSE/NASDAQ stocks, etc. [1] Another thing to watch out for is that fractional shares can't be transferred; they must be liquidated if you want to switch brokers. Schwab has said they'll be launching fractional shares over the summer. Note that most brokers already support fractional shares indirectly through DRIP [2], but that's unrelated to trading. [1] https://www.fidelity.com/trading/fractional-shares https://www.fidelity.com/trading/fractional-shares [2] https://www.investopedia.com/terms/d/dividendreinvestmentplan.asp https://www.investopedia.com/terms/d/dividendreinvestmentpla...
- gnicholas 7y ago> Another thing to watch out for is that fractional shares can't be transferred; they must be liquidated if you want to switch brokers. What happens if I buy .5 shares of AAPL every week for 53 weeks? Do I have 26 undivided shares that can be transferred and one half-share that has to be liquidated, or do they treat it as 53 half-shares that all must be liquidated? If the latter, seems like a great way to keep people locked-in. But the former could be a headache for basis reporting, especially if you could transfer to a brokerage that doesn't natively support fractional shares.
- atombender 7y agoI don't know for sure, but I'm pretty sure they're combined behind the scenes. Fractional shares are really abstractions over an underlying instrument. The broker is the actual owner of the shares, and you have an indirect ownership. Among other things, it leads to a situation where you cannot take part of normal shareholder activites such as voting. The broker still needs to keeps records of the cost basis of each fraction you purchased, of course.
- zymhan 7y agoI recommend Vanguard for their very low overhead and fees. I am a customer of theirs and Robinhood, and Vanguard's relative conservatism is a huge plus when you're investing a lot of money.
- reverend_gonzo 7y agoInteractive Brokers is a professional brokerage that has a free tier now and just added fractional shares as well. Vanguard, Fidelity, Schwab, TD Ameritrade are all legitimate operations as well, but IB is what professionals use.
- ZeroCool2u 7y agoYes, IB is what I use too. Their paid individual account tier is only $10 a month and provides SDK's with robust support for Python, Java, and C++.
- e-clinton 7y agoDoes their paid tier include free options trading? That’s what’s attractive about Robinhood, but they cost me $7k on Monday so I’m dumping them.
- ZeroCool2u 7y agoOnly US Exchange-Listed Stocks / ETFs are commission free.[1] Honestly though, the commissions are extremely low. Definitely lower than that $7k. Just keep in mind, you get what you pay for. [1] https://www.interactivebrokers.com/en/index.php?f=45500 https://www.interactivebrokers.com/en/index.php?f=45500
- reverend_gonzo 7y agoTheir fees are something like 10 cents if you’re trading an option. Completely irrelevant.
- PascLeRasc 7y agoI'm very very happy with Wealthfront. They make automatic investing incredibly simple and explain every step of choosing your risk tolerance. I've used Robinhood extensively and I think it's just too much work and invites you to be too active/reactionary.
- WrtCdEvrydy 7y agoI'm an M1 finance guy, but that might not be good enough for most people.
- LatteLazy 7y agoAs a small investor, you don't want individual shares, let alone fractional ones. Stick to vanguard and their excellent etfs. Don't try to time markets, if they're down, trade tomorrow or next week. Pretty much anything else is just gambling.
- harryh 7y agoWhy would they have needed to draw down their credit line and then pay it back over a two week period? I don't have an answer to this question.
- deleted 7y ago[deleted]
- bonestamp2 7y agoI can't get past the paywall, so maybe the article answers this question. But, in case not, one major reason could be margin. If you pay Robinhood $5/month then you have access to borrow money from them to buy stock. The first $1000 is interest free and additional "margin" incurs interest. When the stock market plunges, some people will see that as an opportunity to buy more stock at a reduced price. If they don't have any liquid funds in their account, borrowing money from the broker is instantaneous (assuming you've previously enabled it). I don't know what happened, but I could see their line of credit getting eaten up very quickly if enough investors decided to leverage their available margin. If investors sold those shares within two weeks, they could pay back the credit line.
- lcfcjs2 7y agoBoomers hate Robinhood for some reason.
- volak 7y ago“We determined it was prudent to draw on our credit line during the week of Feb. 24 in light of market volatility. That capital was returned in full last week.” Headline should read "Robinhood used credit that was available to them and paid it back" But that wouldn't generate the desired panic or clicks now would it
- cma 7y agoWhy not “used all credit that was available to them”? Without “all” it would be confusing what was even being pointed out.
- odiroot 7y agoOr "Robinhood's CFO is doing their job right"
- grandridge 7y agoOr hes afraid of there being no one willing to lend to him tomorrow
- caymanjim 7y ago> “Companies don’t tap their credit line unless they need to,” said David Ritter, an analyst at Bloomberg Intelligence, who spoke generally about the issue without commenting directly on Robinhood. When companies do, it’s “perhaps not a good signal with regard to their cash burn, which could make creditors nervous.” It's yet another sign that this company is teetering on the edge of collapse. That isn't irrational panic. They were completely offline for an entire day during the biggest market rally in over a decade, and have had smaller outages during other recent volatile trading days. This company deserves to crash and burn. Anyone who still keeps a balance there is insane. People have lost millions and are going to continue to lose because Robinhood is run by amateur clowns.
- im3w1l 7y agoFrom what I heard they weren't the only brokerage with an issue. Maybe they had the worst issues, but I think it's also that their customers are more vocal than others.
- brenden2 7y agoI hope they aren't insolvent yet, there's a 3-6 business day waiting period for transferring your positions/balances to a different broker with ACATS. Does anyone know what happens to any open positions in the event that they do become non-operational?
- kchoudhu 7y agoYour positions are safe in segregated accounts. Of course, that's what everyone thought about MFGlobal too. Personally, I'd get my funds off the meme brokerage and on to a real trading platform.
- JumpCrisscross 7y ago> I hope they aren't insolvent This smells like an unexpected collateral call. Their maxing out the line is material for estimating operational continuity. But given the market's volatility, I wouldn't read it as a solvency problem per se. > Does anyone know what happens to any open positions in the event that they do become non-operational? The SIPC [1] insures deposits up to $500,000. [1] https://www.sipc.org https://www.sipc.org
- colechristensen 7y agoAlmost the same thing, but this seems like existing collateral requirements being met for exceptional usage/volume (and pulling it from a purpose-created credit line instead of a corporate account with a different purpose)
- JumpCrisscross 7y ago> this seems like existing collateral requirements being met for exceptional usage/volume Brokerages, particularly discount brokerages, are leveraged beasts. When prices move, they have to post collateral. The brokerage has to then make up that deficit by calling customers' capital and/or liquidating securities. Between those two, the brokerage has to draw on reserves and, lacking that, borrow. If it can't, it goes into receivership.
- 7y ago
- whatok 7y agoIt's almost always a prudent decision for a company to draw on loan facilities if they think things are going south. Draw while you still can and before you trip a covenant.
- wiredfool 7y agoThe irony of credit is that it's least likely to be available when you really need it.
- kissickas 7y ago> Robinhood said last week that a confluence of factors -- record account sign-ups along with highly volatile and historic market conditions -- led to unprecedented stress on the firm’s infrastructure. > That heavy load caused the so-called Domain Name System, or DNS, to fail. Not a developer. Is it not customary just to hard-code IP addresses instead of domain names when the app is communicating with your own servers? I would assume that would make every interaction faster and is something that would be done anyway.
- JacobHenner 7y agoNo, especially if DNS-based service discovery is being used.
- zymhan 7y agoMany services use DNS to distribute requests across regions or to balance load or for failover purposes. An IP address is less flexible for those purposes.
- brianpgordon 7y agoCertainly not. DNS is a good way to decouple logical service names from actual machines. This is particularly useful with containers so that you can put your services wherever the orchestrator wants them. It can also be used for load balancing and resiliency.
- scarejunba 7y agoNo. You usually use service discovery and it's often DNS based. You can do that if you use Consul and stuff like that and it allows you to bring in new things on the fly.
- salawat 7y agoNot if you're using something like AWS since the IP is not guaranteed. If you're managing your own server farm though, yes, you can statically allocate IP's and cut out DNS in it's entirety. A practice to this day I do not understand why more places don't. Then again, I was always comfortable with memorizing phone numbers and the like.
- alexpotato 7y agoI've worked in "FinTech DevOps" for the past 10 years and this reminds me of a story from a past job: We hired the Global Head of Clearing [0] from a big bank and on their first day they were giving a presentation on their background and how financial clearing works. Someone asked "What is your nightmare scenario?" The response: We have a large overnight position in a security. Our Prime Broker (PB) [1] comes back and says "We disagree with you on the position so you can't trade." Even if it turns out that the PB is wrong, by the time it all gets sorted out, the market has moved so much in that security that it bankrupts us. I've seen it happen to other firms and it's not pretty. I also started at Knight right after their big outage. [2] People like to talk about the big tech outages sinking financial firms but it can just as easily be plain old issues with bookkeeping that can blow up a firm. 0 - https://www.investopedia.com/terms/c/clearing.asp https://www.investopedia.com/terms/c/clearing.asp 1 - https://www.investopedia.com/articles/professionals/110415/role-prime-broker.asp https://www.investopedia.com/articles/professionals/110415/r... 2 - https://www.thestreet.com/investing/stocks/knight-capital-shuts-down-trading-on-electrical-outage-11752932 https://www.thestreet.com/investing/stocks/knight-capital-sh...
- dickjocke 7y agoTotally talking out of my butt here, I have no finance knowledge. But just as a matter of general game theory stuff I understand that sometimes you have to push all your chips in on a position, but that doesn't seem sustainable? Like how often is it reasonable for a big bank to have a position in a single security that could bankrupt them?
- alexpotato 7y agoGreat question! Realized I was mixing different company sizes in the original post. This would most likely be hitting smaller to medium sizes firms (e.g. Hedge Funds) that are holding a larger position in a security. The small/med firms don't "self clear" so they tend to depend on a larger firm to do that for them. I should also point out: I used the example of one big position but it could also be a bunch of medium sized positions and then the PB says "Hmmm, we don't agree with 1 or more of those positions so we are stopping trading with you on all of them."
- HenryBemis 7y agoLet me reword some things in the article: > and is now backed by venture capital firms including Index Ventures, Andreessen Horowitz and Sequoia So these big players (aka "Smart Money") have granular access to everyone's personal & financial details, have access to trading information, are gaining deep knowledge on how Retail (aka "dumb money") operate/trade, their patterns, per age/gender/region/etc. That information is priceless, and then this happens: Sardine Feeding Frenzy: Whale, Shark, Dolphin and Sea Lions | The Hunt | BBC Earth https://www.youtube.com/watch?v=6zOarcL1BSc https://www.youtube.com/watch?v=6zOarcL1BSc
- bernardom 7y agoYou think the VC investors of a brokerage get access to individual customer transaction data? I'm sure it's happened before, but I have to imagine such a thing is incredibly rare and illegal if violating the stated privacy policy (due to GLB law).
- HenryBemis 7y agoVC that have equity, yes. Because if they got equity and they own part of that business they sure as hell will siphon the data and nobody and nothing can stop them. It is like telling me that a Holdings company does not have access to a Subsidiary's client data.
- matthewowen 7y agoI can go out and buy Schwab equity tomorrow. Will they turn over their data to me? I recognise that's reductio ad absurdum, and I'm not saying it's impossible that data is misused. But the idea that equity holders of regulated financial institutions can just get whatever data they want out of that institution is... not true.
- HenryBemis 7y agoI have seen this happening in every Bank I've ever worked in/with that was big enough to expand or small enough to be M&A-ed. When a bank buys out a significant part of an Insurance, Factoring, Securities, etc. company, the next day the clients get a nice letter (or email nowadays) about the news and that is that. And a few weeks later the vertical sales begin. All banks that grow through M&A (mostly As) do exactly that. I will assume RH to be Securities since they don't seem to be doing something else (give out loans, hold deposits). So, again, if those fine people that have £€¥$ to RH are JUST VCs the above is not happening. But if they DO have equity, and that would be north of 5-10%, and they BDO have some management over RH (BYOCommitees) it is naive (not mean to insult you or anyone) to think that they don't siphon data. It is like saying that MS didn't get a copy of LinkedIn the very next day, or that FB didn't get their hands on WhatsApp's phone numbers, or that a BANK who just bought a Securities company for which they are NOW LIABLE in the eyes of SEC did not get ALL the data to run KYC/AML/OFAC etc. That company has a $1.7bn valuation where own funds where...? And three big players may own 60-70% of that? I have seen this happening so many times. And there are myriad ways to get the data. The easy ones is through their DWH where suddenly (with the correct mapping) all reports etc work on day1 with the new data. If you know this from experience (ran due diligence pre M&A, worked with the DWH post M&A) or have some other experience on the matter, feel free to share names. I will only share two SocGen and BofA and leave it at that.
- neonate 7y agohttps://archive.md/E9zBL https://archive.md/E9zBL
- vnchr 7y agoMisleading headline from Bloomberg, at least in effect.
- ptah 7y agocredit is so cheap nowadays. i'm sure their creditors were happy for the business