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Can someone help me understand Robinhood's POV? This just seems so outrageous that there must be some sane rationale that I'm not seeing. Why do Robinhood, Re

• node01 6y ago
  Could either be govt/NASDAQ forced something or a major investor/VC in Robinhood is putting the pressure because they have other investments or vested interests in the hedge funds getting hurt.
• shut_it_down 6y ago
  One of Robinhood's main business partner is Citadel (RH sells their order flow to Citadel). Citadel is also the firm that has bailed out Melvin Capital, one of the hedge funds that took a huge short position in GME. Probably just a coincidence.
  • agumonkey 6y ago
    I follow the bitcoin crowd a bit. Everyday they issue claims like 'bitcoin was made to free us from wealthy people games' it felt echo chamber / tinfoil at times. This isn't hurting their theories.
    • ceejayoz 6y ago
      They're right that wealthy people game the financial system. They're insane (or self-interested) to pretend the same doesn't happen in cryptocurrencies.
      • agumonkey 6y ago
        maybe, were crypto exchanges forced to stop trades before ?
        • ceejayoz 6y ago
          Crypto exchanges going down during times of high volume is definitely a thing, yes. For example: https://www.coindesk.com/coinbase-redoing-infrastructure-to-prevent-outages-during-peak-times https://www.coindesk.com/coinbase-redoing-infrastructure-to-... > During the recent bitcoin bull run, Coinbase has struggled to keep itself up during stretches of heavy volume, leading to snarky comments on Twitter and Reddit that it’s only news when the exchange doesn’t go down during peak periods. Given the exchange has filed preliminary documents for a public listing of the company’s shares, fixing its infrastructure has undoubtedly taken on an even greater urgency.
          • agumonkey 6y ago
            Going down is one degree lower than officially displaying a 'you cannot buy <security>' on your app. I know DDoS smell bad but it's not the same. And mind you I lost profits on the latest DDoS.
            • ceejayoz 6y ago
              Coinbase suspended XRP. Not a perfect comparison, but perhaps closer to what you're referring to.
              • agumonkey 6y ago
                It was due to the SEC, not unofficial influences.. I think it's a different topic
        • cactus2093 6y ago
          Don't forget that crypto exchanges have none of the properties of cryptocurrencies themselves, in terms of censorship resistance and cryptographic guarantees. Since fiat currencies are involved and these are businesses operating in countries with laws, they have to enforce whatever the government wants to require of them. They can absolutely halt trading, or freeze funds or assets on their platform at any time.
    • loceng 6y ago
      This is just shifting who's getting the unreasonable, unnecessary transfer of wealth weighted towards the earlier adopters.
    • cableshaft 6y ago
      Wealthy people games exist in bitcoin as well. Especially now with all the institutional investment and futures markets. I say this as a long-time bitcoin fanboy as well.
      • agumonkey 6y ago
        yeah can be to
      • AzzieElbab 6y ago
        It is not the same. Wall Street is playing with other people money mostly pensions and funds borrowed from the state.
        • mudlus 6y ago
          This is the only relevant thread in this ongoing class war.
        • cableshaft 6y ago
          Fine, it's not on the same level, but it sure does fuck with the crypto markets.
  • voteflipper 6y ago
    I keep seeing this pop up everywhere; Citadel != Citadel Securities
    • shut_it_down 6y ago
      Same group of companies, the distinction is completely irrelevant.
      • voteflipper 6y ago
        One’s a market maker + bank, one’s a fund. I understand it’s against the grain to hold this opinion, probably because it’s inherently not conspiratorial, but they do different things and regulated/managed entirely differently.
        • piva00 6y ago
          They are still owned by the same group of people, with conflicting interests: one side supports a trading platform, the other side just bailed out a moribund fund and needs to make that money back. What side do you think wins given the huge hole left in Citadel after propping up Melvin?
        • purerandomness 6y ago
          Companies do not make decisions. People owning these companies make decisions.
    • kasey_junk 6y ago
      You keep saying that but they are literally sub companies of the same larger conglomerate. Their CEO and founder is the same person, he is also both of their primary shareholders.
    • pfortuny 6y ago
      Mitsubishi Electric != Mitsubishi.
    • ForHackernews 6y ago
• mox1 6y ago
  So FYI, the Reddit WSB "shutdown" was temporary and on purpose (by the mod admins) to clean up the page a bit. It was private for an hour or two and back up. Discord, not so. Looking at the financial backers of Discord, you can pretty quickly draw a link to the short sellers. Presumably some phone calls or dinners were had last night and strings were pulled to shut the discord down.
  • wongarsu 6y ago
    What you are describing would be Discord engaging in (potentially illegal) market manipulation.
    • batmenace 6y ago
      How?
    • ev1 6y ago
      This will be somewhat difficult to prove because the WSB discord (for the hour I was in it) was more or less a walking terms of service violation, near totally consisted of "ironic" racial slurs and "ironic" racist memes, n/f-word everywhere.
      • ordinaryradical 6y ago
        It was clearly taken over by folks intending to have it shut down because it did not look like that prior to this GME bet gaining media attention. There is a lot of extremely questionable things happening around this event leading me to think that some very wealthy people are trying to prevent their shorts getting blown up at all costs. Even on HN I’ve been seeing weird posts on these threads.
        • ryneandal 6y ago
          Eh, that blatant offensive nature is a 4chan holdover, which WSB proudly embraces. Plenty of millennials are former /b/ browsers, now in their 30s and some with plenty of disposable income. I've struggled with this in some friend groups, particularly after having a child diagnosed with an autism spectrum disorder.
• TheHypnotist 6y ago
  This is just a guess, but I imagine the hedge funds that own shares of these platforms are pulling some strings. That's a bit conspiratorial, but is it really that unbelievable?
  • AnHonestComment 6y ago
    It’s not unbelievable, but it does sound like a breach of fiduciary duties to side with investors against your clients. Is what RH doing legal for a brokerage?
    • throwaway-8c93 6y ago
      > Is what RH doing legal for a brokerage? At this point, nobody cares - Reddit found a repeatable distributed exploit that cannot be patched, and the financial system's self-preservation instinct kicked in.
      • AnHonestComment 6y ago
        It seems more like WSB found an exploit in financial malware and crooks are panicking that their swindle got disrupted. What WSB is doing only works against a certain kind of predatory short position. The “patch” is to disallow those predatory short positions, which are themselves vulnerable to well-funded activist investors. Obviously the crooks directly involved don’t want to do that, though.
      • imtringued 6y ago
        The big short was the same thing. The VW short squeeze too. This is nothing new. The fix is to just close your short position.
        • dillondoyle 6y ago
          I love that movie it shows them 'fixing the House' / messing them around in other ways. ratings houses refusing to downgrade MBS rates and the banks that wrote Burry's trade refused to execute until they also were on the right side.
• bondarchuk 6y ago
  As far as I understand it robinhood makes (most of their?) money from selling their order flow to hedge funds.
  • dd36 6y ago
    Yes. Hedge funds profit from every trade on RH.
  • kortilla 6y ago
    Nah, it’s likely net interest that is the largest portion.
  • coldcode 6y ago
    Which is not remotely illegal, and most brokers do the same thing, except they used to charge people to buy and sell as well but now just make money from order flow. In fact market makers have always been involved in stock sales to ensure a fluid market; none of this is new. What is new is that buying and selling stocks costs you nothing, so there is no barrier to anyone to put money in or take it out. While everyone thinks it's a great thing, it's no different that allowing free communication in exchange for your personal data (ie Facebook) instead of requiring you to pay to communicate via mail or phone or plan things in person. Free always has a cost; in this case free involve scads of money changing hands with the folks at the end holding the bag, and anyone can pump the market to ensure they make a profit, and someone else takes a loss.
    • ForHackernews 6y ago
      It's not a question of legality, it's one of incentives. Similar to Google or Facebook, if I get the service for free, the service-providers' incentives may be aligned against me in favour of their paying customers.
    • ceejayoz 6y ago
      The theory isn't "it's illegal", the theory is "someone at their main source of revenue might call them up and pressure".
• ForHackernews 6y ago
  Robinhood makes most of its money by selling "dumb money" order flows to bigger Wall Street firms: https://fortune.com/2020/07/08/robinhood-makes-millions-selling-your-stock-trades-is-that-so-wrong/ https://fortune.com/2020/07/08/robinhood-makes-millions-sell... It seems plausible to me that some of Robinhood's real paying customers have asked them to tame their unruly product.
• janmo 6y ago
  It is likely that they have lend out the $GME shares to a hedge fund that went short, if this hedge fund goes bankrupt and the stock price continues to rise they will be in serious trouble.
• metalliqaz 6y ago
  Robinhood allows free trades. With all the new customers loging in and just buying a few stocks, they have to acquire lots of new shares. When this is all over, a lot of retail investors are going to be left holding the bag, and will likely not be continuing customers.
  • pmorici 6y ago
    Better to educate instead of ban then. So long as people have the facts, let them make their own decisions. At this point a number of people are probably just in on this because they love the idea of sticking it to a hedge fund or two.
  • rory 6y ago
    Are buyers of these stocks really exposed to more downside risk than the buyers of the way OTM options they sell to retail investors freely?
    • IG_Semmelweiss 6y ago
      Only those that got in late and then chose to sell at a lower price than cost. However, and here is the problem - when the price does come down (likely after the shorts capitulate) , it will literally be a stampede to finally get out. It is unknown how sell orders will be processed... if at all at that point. So the later you get in the more likely you are to be burned, in the disordely unwinding scenario. Early adopters will be ok. Holders and latecomers will not.
      • rory 6y ago
        My point is, why is Robinhood still selling options that have a 95% chance to expire worthless, if their actual motivation is to protect their investors from high-risk trades?
  • ghastmaster 6y ago
    The opposite is true: The idea behind these trades is that they will not in fact suffer any losses because they bought in after the naked shorts brought the stock down to a low valuation. If they keep the stock high enough, long enough, the naked shorts will have to buy back the stock at much higher prices than the price was when this short squeeze was started. That's why short squeezes are a thing in the first place. This is no different than what Carl Icahn did to herbalife and Bill Ackman. When companies keep these people from implementing their strategy, they expose these individuals(their own customers) to potential huge losses.
• TheRealDunkirk 6y ago
  > Why do Robinhood, Reddit, Discord, etc feel like they have to respond to this? Indeed. There's a lot of talk about Section 230 lately, and how "precious" it is to freedom of speech. That law protects them from culpability against hosting legally-dubious things like this market move -- and any malfeasant commenting about it -- but none of the big platforms are acting like it exists. They're just censoring anyway, because they are either embarrassed, or are getting their strings pulled. Either stand behind Section 230, or admit you're just censoring things for duplicitous reasons of politics, money, or the rabble.
  • mdavidn 6y ago
    Section 230(c)(2) explicitly protects service providers who remove content that they deem to be “otherwise objectionable.”
• alistproducer2 6y ago
  Reddit and discord are afraid they'll be implicated in what is a classic pump and dump. Robinhood only exists because the SEC has chosen to look the other way concerning the pattern day trading rule which clearly is in jeopardy if big money starts complaining.
  • llampx 6y ago
    What? RH enforces the PDT rule, as does every other US broker. SEC is not looking the other way there at all.
  • volta83 6y ago
    How is this a classic pump and dump ? This is a short squeeze: the stock is shorted to the limit, and from the stock price, the shorters entered their positions "uncovered", so their risk is extremely high, and their losses are potentially infinite. The WSB crowd and probably others noticed this, and bought the stock, knowing that it was going to become more valuable over time once the shorters had to close their positions. They were right, and the shorters are loosing so much money that they are willing to buy back the stock at astronomical prices to limit their losses, which drives the price up even more. The WSB crowd just need to hold until the stock is at the maximum price that the short sellers can pay, right before the short sellers default. That's the actual value of the stock right now. If the stock climbs too much, and the short sellers default, the stock is worthless. TBH, this is the short sellers own fault. They made the assumption that the market was "fair", and that they were going to buy back the shares for cheap when they needed them as a consequence. That assumption was wrong.
    • SpicyLemonZest 6y ago
      It's a classic pump and dump because there's just no reason to believe that this is what's happening. There was a short squeeze at one point, but all of the funds known to hold large short positions had closed their positions by Wednesday morning; the value since then was most likely driven entirely by speculation. In particular, I've seen a lot of speculators spreading the idea that margin calls will force everyone shorting Gamestop to buy stock at market price on Friday. This is wrong, and pretty unequivocally so, but I've had multiple friends come to me and explain that this is why they bought some.
• Tenoke 6y ago
  >Can someone help me understand Robinhood's POV? This is a small part of the picture but RH lost a lot of money due to WSB advertising and exploiting the 'infinite money glitch' so it likely didn't take much convincing to act against WSB. Though ironically it took them months to close the glitch which was their fault and a day to stop the action on WSB's picks. https://markets.businessinsider.com/news/stocks/robinhood-fixes-infinite-leverage-free-money-glitch-suspends-related-traders-2019-11-1028670689 https://markets.businessinsider.com/news/stocks/robinhood-fi...
• tim333 6y ago
  From Schawb “It is not uncommon for us to place restrictions on some transactions in certain securities in the interest of helping mitigate risk for our clients,” from Massachusetts secretary of the commonwealth “It is very clear to anyone looking at the numbers that the whole marketplace is being manipulated here,” he said. I imagine Robinhood's thinking is similar
  • dahdum 6y ago
    I think you're entirely right, but Citadel is the customer Robinhood is protecting. The retail investors are the product.
    • MrMan 6y ago
      Yes its why Robin hood is "free" but people are ignoring that maybe
  • castlecrasher2 6y ago
    In this case, the "restrictions" seem clearly aimed at retail investors, and intended to help those with short positions.
  • CivBase 6y ago
    > "It is very clear to anyone looking at the numbers that the whole marketplace is being manipulated here" I don't get this. I didn't know anything about short selling a few days ago and maybe now is a bad time to learn... but my understanding is that short selling is only legal because it disincentivizes bubbles caused by artificial overestimation of a company. Investors took it too far and short sold over 100% of the stocks in a company, ironically creating ideal conditions for a bubble. As soon as GameStop's stock turned upward, the rampant short selling resulted in a demand for more than 100% the supply of GameStop's stock, resulting in a meteoric rise in price. But how is this market manipulation? The rise in stock price has nothing to do with an artificial overestimation of GameStop's value. It's just fundamental supply and demand. If anything, the short sellers are the ones who manipulated the market when they started shorting over 100% of the stock supply. Like I said, I'm a complete noob when it comes to the stock market. Maybe I'm misunderstanding something?
• LatteLazy 6y ago
  I think it's BS to stop people trading but... You can make a good argument that WSB are engaged in market manipulation. RobinHood don't want to be the broker for that for a whole myriad of reasons.
  • jaxwerk 6y ago
    I would love to see a good argument there, because while that argument is easy to accept at face value, when I dig deeper at the concept of what market manipulation is, I fail to find behavior that the majority of WSB is engaging in that fits that criteria. Where are the fraudulent statements causing price pumps? None of the prominent due diligence the community has provided that started this run has been found to be untrue. Their thesis still stands: GME was undervalued and shorts were vulnerable to a squeeze.
    • LatteLazy 6y ago
      I've no idea if it meets the legal definition of price manipulation (we'd have to review the finra records which aren't public). And even then, it might not be the SEC etcs opinion that they want this fight. That said, WSB have been really clear that they're cornering the market to drive up the price. The fact they've done it by coordinating 1001 little retail accounts makes no difference. Short squeezes are always pretty dodgy. This one is openly a conspiracy to move a market. Shorters got themselves in a dumb position. It seems to me someone is rigging the market to get them out of it. But that doesn't change the core action here: let's conspire to corner the market and force an artificially high price.
      • svcrunch 6y ago
        > But that doesn't change the core action here: let's conspire to corner the market and force an artificially high price. First, I recommend you look up the meaning of conspiracy in the dictionary: "a secret plan by a group to do something unlawful or harmful." Tell me, where was the secret plan? Everything on WSB happened in the open, in plain view of millions of people. Second, the market is not even what's cornered here. It's the hedge fund owners who shorted gamestop (fully understanding the risks this entailed), who are cornered. They are the ones who are driving the price up as they try to cover their short positions.
• hehehaha 6y ago
  When markets move rapidly, and in GME’s case we are T-1 from opex, brokerages cannot manage risks effectively. They could actually be exposed quite a bit. With something like GME (probably an 8 sigma event) it could actually put Robinhood out of business.
  • socialist_coder 6y ago
    It seems to me it's because "market makers" are a thing. Market making activities create billions in profits. But we are seeing the flaw in the market making algorithms. Do we need market makers to let us always take a position in every single option when no real market for that option exists? I would argue no. It's completely artificial and they profit from it. If companies want to be market makers and profit from every single transaction, they need to be prepared to take a loss when the math doesn't swing their way.
    • hehehaha 6y ago
      MM is different from RH. RH would actually need to get collateral (or raise money) to allow its customers to trade GME at this volatility. I really think the anger should be directed at Wall Street and the Fed for creating a frothy investment environment and not doing anything about it. RH OTOH is trying to be a disruptive player.
      • socialist_coder 6y ago
        I understand that RH is not a MM. So then why does RH have to manage its risk from the holdings of it's own customers? I am not a finance professional but I thought RH is just like a custodian and facilitator of trades. It's not on the other side of any of these trades. It never holds any positions. Why does it have to manage its risk and why does a GME event create extra risk for RH? I thought this kind of risk is only for the MM's like Citadel.
        • socialist_coder 6y ago
          I think this explains it: https://news.ycombinator.com/item?id=25951475 https://news.ycombinator.com/item?id=25951475
• snowwrestler 6y ago
  The way to make money in a bubble like this is to sell right before the pop. At some point the word will go out that it’s over—“we won”—and everyone will rush to sell their GME and take profits. It’s not possible for all those people to succeed. Broker apps like Robinhood will be absolutely overwhelmed with sell orders, many of which will run into technical problems and/or no counter parties. A lot of people are going to be pissed off and blame the brokers. People buying in late will have the most to lose and maybe the least understanding of what is going on. I mean, this story was a “breaking news” red banner on WashingtonPost.com yesterday. Not everyone buying GME today understands the social movement /r/wsb angle. Ultimately brokers are worried about getting sued by people or companies who lose a lot of money in ways that will look preventable in hindsight. Edit to add: the 2008 financial crisis was caused by financial firms selling a lot of crazy mortgages to people who could not afford them unless housing prices went up forever. When the crisis hit, the firms got the blame, not their customers. Companies learned that helping their customers shoot themselves in the foot can come back to bite them, even if it was all legal and what customers wanted at the time.
  • jen20 6y ago
    > many of which will run into technical problems If a broker has a technical problem processing a trade, they deserve to be blamed.
    • snowwrestler 6y ago
      Seeing a comment like this on HN shows the risk here. If people here don’t understand the difficulty in scaling to meet huge spikes in demand, how are ordinary retail investors supposed to understand it? It’s one thing to handle “a trade.” It’s another thing to handle everyone trying to trade at exactly the same second. We already saw broker apps have issues this week just on handling the buy volume. The sell volume will be far higher. And I mentioned counterparties too. Even if the technology works, you can’t sell if everyone else is selling too.
      • jen20 6y ago
        I spent many years building exactly this technology. It's hard, but it is (or should be) table stakes for the industry. The risk of not finding a counterparty to which to sell is different - and real - which is why I did not disagree with that aspect of your post.
• Beefin 6y ago
  It's one of the things: 1. SEC is protecting the little guy and being paternalistic 2. Institutional collusion However, 1. could be likely because this GME frenzy is reducing confidence in the overall market. S&P500 lost 100 pts this week. By stifling buys, they
• sgpl 6y ago
  Obviously I'm speculating but one of the largest investors in Robinhood's last round was a hedge fund. As others have pointed out, Citadel's market making arm is their largest source of revenue + Citadel's hedge fund recently invested a large amount in Melvin Capital to help shore up Melvin's capital base after their loss. Unfortunately unless Robinhood insiders leak or post their rationale behind this decision, we'll never really know what happened behind closed doors.
• totalZero 6y ago
  To some degree, they have a legal responsibility due to the "suitability standard" (link below) to do this. While they aren't recommending GME and the others per se, they certainly profit from the order flow as well as new account sign-ups. People may be making money now, but those who lose their shirts -- especially if the RH platform crashes when they try to exit a position -- are going to be angry. Preventing purchases in the first place is a way to keep those people from litigating, and to demonstrate to regulators that RH didn't attempt to profit from a mad dash toward unsuitable investments. https://www.finra.org/rules-guidance/rulebooks/finra-rules/2111 https://www.finra.org/rules-guidance/rulebooks/finra-rules/2... Their platform is probably inundated with open orders on these few names, as the price is all over the place. They had outages back in March 2020 and presumably there's a risk of the same if everyone tries to close their positions at the same time (eg, if u/deepf**ingvalue announces that he has exited).
• diveanon 6y ago
  Because RH's real customers are the hedge funds that buy their trading data. It's users are the product. I'm sure this started with a call from a "concerned" board member.
• nfriedly 6y ago
  A charitable guess is that Robinhood is trying to protect their users from buying at the height of this mania. There are people literally investing their rent money into GME, and it's almost inevitable that the price will come down at some point, the only question is when and how far.
  • rchaud 6y ago
    The trade screen could just display a warning that the stocks are in question are experiencing high volatility, and require the user to click something to indicate that they understand the risks.
• JumpCrisscross 6y ago
  > Can someone help me understand Robinhood's POV? Robinhood is a margin-lending options-trading broker. If a customer falls down on a trade, it is ultimately liable. If a retail customer loses money and makes a FINRA complaint that Robinhood induced them to buy through its gameified interface, it is liable. Risk and compliance likely made this call. Also, Robinhood makes its revenue from market makers. They are the customers. Clients are not. So when trading these equities gets unprofitable, they will pull the plug. (Though anecdotally, everyone I know on the sell side in equities and equity derivatives is making a killing on this.) What I can guarantee is nobody shorting GameStop got Robinhood to pull the plug.
  • Spinnaker_ 6y ago
    This is most likely the answer. They are taking on a lot of risk allowing this type of trading behavior. They likely don't have suitable risk infrastructure developed to feel like they have a handle on it, so they shut it down.
    • snikeris 6y ago
      Robinhood takes on a lot of risk when their customers buy GME?
      • deleted 6y ago
        [deleted]
      • tommoor 6y ago
        Even when they're not buying on margin GME is in a short term bubble that will soon pop and leave millions of their users worse off than before. There probably was some internal logic of "protecting" folks from themselves whether we agree with that or not.
        • ApolloFortyNine 6y ago
          Did they stop people from selling in March when the World was panicing about Covid, despite most people assuming the stock market would rebound? The answer is no.
• nrmitchi 6y ago
  I'm just guessing here, but another thought is that since Robinhood apparently want to IPO in the near-mid term future, they would rather take the “bad press” now, than take it in a month when it’s “Gambling allowed on Robinhood ruins lives as Robinhood makes record profit”
• cactus2093 6y ago
  One possible legitimate reason is the risk to Robinhood themselves. They allow margin trading and I think anybody would agree that buying GME at these crazy prices on margin is incredibly risky. If the traders can't pay, Robinhood or their bank/insurers are on the hook. Also even though the narrative here is Robinhood traders vs hedge funds, surely there are also a lot of shorts on Robinhood too, so there's more margin risk from those too. However why not just disable margin trading on these stocks instead of shutting them off altogether? I don't really know enough to say. Maybe there are additional risks somewhere unrelated to margins? Or maybe the upstream market makers are forcing their hand. Or maybe it's some combination of reasons, including pressure from people who are on the losing sides of these bets. > Why should Robinhood pick a winner (siding against their own customers) As others have often pointed out, Robinhood is in some ways analagous to social media companies. Their end users are not their customers, because it's a free service. The customers are the businesses on the other end, in Robinhood's case the market makers who are paying for the right to front-run trades. If this is no longer profitable for them due to crazy volatility, they can apparently stop allowing trades at any time.
  • andrewmunsell 6y ago
    > Or maybe the upstream market makers are forcing their hand. I'm not a lawyer, but to me, that seems like it would be very very illegal.
    • cactus2093 6y ago
      I agree, with how much regulation is there is in every other aspect of the markets, I am surprised there is not more explicit process around just shutting off trades they don't like.
  • lottin 6y ago
    > However why not just disable margin trading on these stocks instead of shutting them off altogether? Yes... or simply increase the margin.
    • 6y ago
• aphextron 6y ago
  >Why should Robinhood pick a winner (siding against their own customers)? Robinhood operates a lot like Facebook. The "Gold" subscriptions and margin interest are tiny portions of their actual revenue. We are not their customers, we are the product. They offer free trades in exchange for selling order flow data to hedge funds, which in turns allows them to manipulate the markets. Of course they would protect their actual customers.
  • variaga 6y ago
    This is the correct take. If you thought free brokerage accounts with no-fee transactions was too good to be true... you were right! There was a catch, and this is it.
• optimiz3 6y ago
  Disgusting level of manipulation. If you can only close positions the only people who can buy are short sellers closing their positions.
• m3kw9 6y ago
  This prevents over leveraged YOLOs to go bankrupt, which prevents RH to hold their bags
• hintymad 6y ago
  How is this not making people cynical, even for a person like me who does not own any share of GME? And isn't cynicism one of the greatest dangers to a system, for people stop trusting the system no matter what?
  • fire7000 6y ago
    No because the price will normalize in the long run which is the only solid investment strategy. This valuation was created by out of thin air and will disappear into just that. If anything it shows that the market is rife with opportunity where people are overvaluing/undervaluing something
• cryptonym 6y ago
  "The Robin Hood effect is an economic occurrence where income is redistributed so that economic inequality is reduced. The effect is named after Robin Hood, said to have stolen from the rich to give to the poor." So I think in Robinhood's POV, hedge funds are the poor.
• deleted 6y ago
  [deleted]
• vmception 6y ago
  Robinhood’s actual customer is Citadel. Citadel was funding the short sells, investing directly into Melvin Capital, for example. Robinhood did not act against its customers. Its users are their product, which it sells to Citadel. As you see now, this is way more than an edgy quip: when its free you are the product.
  • GizmoSwan 6y ago
    I just want to know how do you know for sure what those guys have been doing. Have they exposed all their trades? Are you saying that they were so stupid to not have hedged it?! This is a hedge fund's game as it is for WSB. It is the regular traders that have shorted via option that are losing money just the same. They are the most likely bag holders because they they don't hedge. Don't assume all parties are truthful.
  • tomjakubowski 6y ago
    Which is invested in Melvin, Citadel (the hedge fund) or Citadel Securities (the market maker, and Robinhood's customer)?
• retube 6y ago
  I know there's a lot of conspiracy around wall st screwing over the little guy here, I suspect the truth is more mundane. When the music stops a LOT of people will be left holding the bag and will lose a great deal of money. There are people putting their parents life savings into GME at $300/share. It's insane, and nothing but pure gambling at this point. I suspect regulators are extremely concerned at the risk people are exposing themselves to.
  • atwebb 6y ago
    While you're right that eventually the music will stop, this thread is about direct intervention. There isn't a way I see that the intervention protects retail at all. By its nature it ensured a full crash and retail didn't see it coming.
    • jgwil2 6y ago
      A full crash is ensured by the fact that the stock is massively, massively overvalued. If they are taking steps to prevent it from becoming even more overvalued, the upshot should be less money getting lost overall.
      • atwebb 6y ago
        Possibly, you are only part of the crash if you have to buy at the top which, from my understanding, would be the short sellers as it is driven to a 1 time spike. There would be bag holders from not having limits set correctly and all but that's the risky play. Doing this way ensures that retail loses, 100%. Only a retail app was blocked. It is the asymmetry, I can't see a valid reason for unilateral action from RH here.
        • greenshackle2 6y ago
          I don't see this ending well for (some of) the Robinhood crowd. Wall Street has deeper pockets. Robinhood manages $20B in total. A small-ish hedge fund has like, a few billion dollars AUM. There are many such hedge funds, and a couple dozens much larger ones. A couple funds with large short positions have popped, but short interest hasn't budged; they were just quietly replaced by other funds. At this point probably every hedge fund who trade equities is short GME. If your position is not too large and you have enough cash you can just keep meeting the margin calls and collect your free money when the bubble bursts. (And stop loss orders don't save you if the crash happens fast enough.)
• yumraj 6y ago
  > (siding against their own customers)? You misunderstand who their customers are. Who you're calling customers are users. Their customers, the ones who pay them, are the dark pools and other trade routers, or whatever they are called, who pay RH for routing trades thorough them.
• ummonk 6y ago
  Their customers aren't their users - it's the institutions paying them for order flow.
• neximo64 6y ago
  Well probably to stop people buying at $500. If at any point it crashes to $100 it's going to make people more upset.
• beachwood23 6y ago
  I don't think this was Robinhood's choice. Robinhood doesn't actually execute any trades. They sell user's trade orders to Citadel, a trade executor. Citadel then buys the shares on the market, and sells them to Robinhood for a slight markup. It's how Robinhood offers trades for $0 fees. You pay pennies more per share, but don't have to spend $5 per trade. Citadel, and other trade executors, are refusing to buy shares for retail traders. Coincidentally, Citadel also bailed out Melvin fund for their short position in GME. So, Citadel has an interest in not letting the price go up any further. And citadel controls trade execution for dozens of firms. This is definitely illegal. But Citadel is betting that the resulting SEC fines from this illegal manipulation will be less than the loss they would get if they didn't suppress the price.
  • whimsicalism 6y ago
    I'm just not really sure I understand the narratives being thrown around right now, and I'd like to think I understand the economy somewhat Melvin Capital closed out their short position yesterday with a large loss - and Citadel helped cover that loss. As far as I know, Citadel and Melvin Capital no longer are holding any short positions in Gamestop. So what do they have to gain, by your narrative, from suppressing the price? Citadel is probably making bank off of this actually, like a lot of other sell-side firms.
    • warkdarrior 6y ago
      If SEC decides at some point that this was pump-and-dump scheme (even crowdsourced), the Citadel may become liable for enabling that scheme, even if they do not run it themselves.
      • whimsicalism 6y ago
        I think it is much more likely that Robinhood is liable than the liquidity provider for Robinhood.
      • cameldrv 6y ago
        It seems unlikely to me that Citadel would be liable. They're just processing bulk transactions -- they have no direct contact with customers. You could just as well blame the NYSE.
• luxuryballs 6y ago
  Well with a name like Robinhood I can at least see why they might be a tad hot under the collar on the legal department today.
• esoterica 6y ago
  > Why should Robinhood pick a winner (siding against their own customers)? They're not siding against their customers. The median Robinhood trader that buys in at $350 is going to be left holding the bag when the price drops back down to $10. You can argue whether or not the paternalism is good or bad, but this is obviously going to on net stop more people from losing money than making money.
• sgregnt 6y ago
  It's not just Robinhood, I'm on Schwab and they blocked trading GME this morning (didn't try it but SELL might still be open)
• esoterica 6y ago
  > Whether the investments being made are responsible or not, it doesn't seem like it should be their place to intervene. The entire history of the retail investing is unsophisticated investors shooting themselves in the foot and then turning around and suing everyone who allowed them to shoot themselves in the foot. It's obvious to everyone watching that for every retail investor who buys in at $10 and cashes out at the top there are going to be 20 other traders who FOMO in at $300 or $500 and then hodls all the way down to $10. People have a stated preference for Freedom to take risks but a revealed preference for paternalism (they start suing everyone around them for not "protecting" them from themselves when risks go bad). You can't blame companies for rationally responding to the legal liability they think they will incur if they let more retail traders pile onto meme stocks.
• cm2187 6y ago
  Are they banning people from trading the stock or trading the stock on margin? On margin would be reasonable, if the volatility of the stock becomes very high, the broker is taking a credit risk on its client it may not want (plus suitability consideration). It may also make sense to restrict access to certain stocks if they are deemed too complicated/dangerous to retail investors. But I doubt the suitability would be a function of a market movement. Or is the platform assuming that its clients are doing market manipulation by coordinating on reddit to push the price up, and wants no part to a crime being committed. Just speculating, but can think of some reasonable reasons.
  • socialist_coder 6y ago
    They're not letting you open new positions in the stock or options on the stock. You can only close your existing position. Guaranteed way to make the price go down.
• anonu 6y ago
  What's played out over the last week has been an epic battle between David and Goliath. Goliath is winning... per usual. Translation: big business interests and wall street hedge funds win out. Of course, lots of retail guys and gals and r/wsb folks are losing their shirts today. It would have been next week if it didnt happen today.
• jariel 6y ago
  "Can someone help me understand Robinhood's POV? This just seems so outrageous" You are a mall owner and 25 000 people are stampeding through your mall causing a ruckus which will in the end create no value for anyone. This is speculative mania with no basis in any kind of market reality, people are actively acting against the best interests of the participants, especially the companies themselves. The lack of understanding here is what is 'shocking'. BlackBerry, Robin Hood, Citadel, NASDAQ - nobody wants to be part of this. It's ridiculous that people think they are somehow 'doing good' or even have some kind of inalienable right to own shares in a company on whatever terms. This is a 'market riot' nobody wants to be involved but the rioters. CFOs are all very nervous right now and I wouldn't doubt if some of the target companies have asked for protection.
• KMag 6y ago
  There are a couple of charitable explanations for Robinhood acting this way. One is that most Robinhood users probably under-estimate how quickly they can sell if the price turns around quickly. There might not be enough willing buyers for all of the Robhinhood users who might be looking to get out at the same time. Another thing is that I'm not a lawyer, but they could be worried that if the SCC finds the discussions on Reddit constitute a conspiracy to manipulate the market, and it's primarily being executed through their platform, and they're aware of the conspiracy and take no action...
  • imtringued 6y ago
    Every short seller is a buyer. That's why people keep buying the stock. There are more buyers than sellers.
    • KMag 6y ago
      But what happens when all that liquidity provided by squeezed shorts dries up when either they all capitulate or the price starts to come back down?
• blablabla123 6y ago
  To be honest I ignored the whole topic until today. But in my opinion the rationale is obvious: you buy a stock, that means you provide that company with liquidity that they can use to operate and grow their business. I guess especially in the startup scene VCs and investors are in high regard since they believe in the future value and perhaps also the product of a company. Example: imagine I'm a hedge fund and put so much money into company x that the stock moves up. The company probably thinks I gonna fund their business for a few years (remember, stocks are long-term investments). Stock rises, they do a few risky choices. Suddenly I pull back my money. That would suck. I think options and futures have reasonable functions, especially to stabilize investments and raw material purchase. But speculation can easily get unreasonable, you basically speculate with the liquidity/credit of other companies that actually care what they do. The irony is that futures have been invented to stabilize food production, I think since almost 1000 years. But probably you don't want a large hedge fund play with this stuff. Also to put on another perspective. People are crazy about fairness on markets, even the super free US market has strict cartel laws. On the other hand large funds like Blackrock are so large, they have government-like powers. They even have the power to decide whether companies should stay or steer away from coal energy. That's even worse than a monopoly. https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/investment-giant-blackrock-marks-a-major-milestone-in-coal-divestment-movement-56669181 https://www.spglobal.com/marketintelligence/en/news-insights...
• deleted 6y ago
  [deleted]
• riazrizvi 6y ago
  Execution risk that they can’t handle. When you buy/sell stock on Robinhood, they hold execution risk until they net out your position by transacting a large enough order on the market. In this situation they don’t know how to manage the execution risk on these trades, so they are losing money, so they don’t want to do them.
• deleted 6y ago
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• jb775 6y ago
  Serious question: Since RobinHood is a private company, does the "if you don't like it, you can build your own platform" argument apply here? Or does that only apply selectively when it benefits partisan politics? This is the natural evolution when censorship as we've recently seen is given a pass.
  • southeastern 6y ago
    Censoring speech and regulating stock trading are categorically different. This doesn't cut across political lines as much as it does lines of class
    • jb775 6y ago
      Yes, but that still has absolutely nothing to do with a private company having the right to make their own business decisions. The ACTUAL different is that since it doesn't cut across political lines, you want to treat the situation differently.
• twinkletwinkle_ 6y ago
  You know the adage usually applied to Facebook, "If you're not paying for anything, you aren't the customer, you're the product" ? . Daytraders and WSBers and other small fish like you and me aren't Robinhood's customers. Robinhood's customers are Citadel and companies like them who pay Robinhood for order flow from the uninformed masses. Keeping that in mind, here is the simple answer to your question: https://twitter.com/justinkan/status/1354853920762253315?s=21 https://twitter.com/justinkan/status/1354853920762253315?s=2...
• okprod 6y ago
  Rh wants to go public and relies on Citadel. Both major reasons why Rh does the larger funds' bidding. Rh's trading for the people angle is a bunch of BS
• mgolawala 6y ago
  I am not an expert on this.. but here is a theory. Broker's are incentivized to have the short squeeze stop. Someone please correct me if I am (or how I am) wrong with the following: Bob is a broker. Jack comes along buys 100 shares of X. Bob lends those 100 shares of X to Amy to sell short. Amy sells it short. Price shoots up.. Amy says “oh crap.. Sorry bill. Simply cannot buy back those shares. I am bankrupt. I physically do not have the money to do so. Jack will still expect Bob the broker to make sure his 100 shares of X are there one way or the other. Bob the broker has to buy back those shares it lent out to Amy so that Jack the account holder is still able to sell/trade their shares.
• alasdair_ 6y ago
  >Why should Robinhood pick a winner (siding against their own customers)? Because Robinhood's actual customer is Citadel, not the retail people making the trades. Citadel gave $2.7BN to Melvin Capital a couple of days ago. It stands to lose that money if Melvin (and Citron etc.) can't fully cover their short positions. A good way to make the stock price go down and allow Citadel to make money, is for RH to only allow selling and not buying of GME. It's utterly appalling market manipulation.
• Symmetry 6y ago
  >Why should Robinhood pick a winner (siding against their own customers)? If you consume a free product you aren't the customer, the person who pays the provider money is.
• bargl 6y ago
  I'm going to start spreading this around. It's a comment by someone else who points to an interview of the WeBull CEO and why they had issues. It's pretty clear that this is a process issue, not necessarily a RobinHood is evil issue. https://news.ycombinator.com/item?id=25950191 https://news.ycombinator.com/item?id=25950191 Link to the video from the OP. https://finance.yahoo.com/video/heres-why-robinhood-restricting-users-173049721.html https://finance.yahoo.com/video/heres-why-robinhood-restrict...