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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 dev

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.
    - hindsightbias 6y ago
      Quite a bit of difference from markets being influenced by outside events and the market being influenced by your gamified platform.
    - argonaut 6y ago
      > most people assuming the stock market would rebound No, people / pundits / the media were widely proclaiming that the healthcare system would be overrun and the next great economic depression was upon us. Most people assumed the stock market would continue to fall.
  - imtringued 6y ago
    Buy high, sell never. Everyone who bought the stock has already written it off as a complete loss. Everyone is banking on being worse off than before. They still buy it for the entertainment value and Robinhood denied them that.
- baking 6y ago
  The risk to Robinhood is GME crashing by more than the amount of the margin. A large brokerage that has been through crashes before has systems in place, and can spread the remaining risk around. If a large portion of your customers are invested in a handful of stocks, their risk becomes your risk. Also, other customers of Robinhood who have cash that is in an uninsured account are also at risk even if they are not invested in GME.
  - DennisP 6y ago
    Then why not shut down margin purchases of GME, but not cash purchases?
    - baking 6y ago
      There was some speculation that they didn't have that capability. Brokerage firms should have the ability to restrict margin trading in particular stocks, but what if Robinhood couldn't, at least not on short notice? There could is also the concern about new accounts trading in GME with funds that might be suspect. It's a risk you don't want to take if you don't know your customers and the bubble is ready to burst at any moment.
      - sweettea 6y ago
        They did shut down margin trading in GME and others several days ago, this is a further step atop it.
        baking 6y ago
        Did they issue margin calls?
- MrMan 6y ago
  aggregate customer exposure means that massive simultaneous losses by retail traders following the herd can mean losses for RH, which they want to prevent.
- beagle3 6y ago
  It does because they let them buy on margin. Interactive Brokers hiked the long margin to 100% (and short to 300%) which is a reasonable way for a broker to behave. Killing the ability to buy is not.
  - gmethowaway 6y ago
    IB doesn't allow you buy GME even w/o margin account.
    - seniorThrowaway 6y ago
      I don't think that is correct. They stopped options trading in it not 100% cash backed stock buying or 300% cash backed shorting. I think their position is fairly reasonable and as an account holder there I don't want people going crazy on leverage on this amount of volatility.
      - simplerman 6y ago
        Got email from IB that you cannot open new positions on GME this morning.
        Trias11 6y ago
        Probably not even long positions and probably just purely for liability reasons to stay away from the mess when shit hits the fan
      - gmethowaway 6y ago
        That's what they advertise via Twit. But if you try to buy even 1 stock of GME on non margin account (our own money only) it doesn't allow you to do that. I have a screenshot for that if you want. And customer support line is overloaded as expected.
      - seniorThrowaway 6y ago
        ok that is unfortunate I didn't go all the way through with trying to actually buy. I'm a long time customer and they were definitely better before they went public
kart23 6y ago
Why can't they just stop the people on margin from buying gme? That would be reasonable. But if it's your money, I don't see how it's risky for RH.
- madenine 6y ago
  RH makes money by selling data to investment firms, not off individual trades/fees. If their customers - the firms that pay them, not app users - see the RH platform as a threat to their business they could pull the plug[0]. Or if this prompts regulators to examine RH and similar products. The risk isn't in the outcomes of options/trades; its risk to their business model. [0] RH's customer are actually market makers, who by and large will be profiting heavily off of this.
  - JumpCrisscross 6y ago
    > If their customers - the firms that pay them, not app users - see the RH platform as a threat to their business This point has been made repeatedly elsewhere but it bears repeating. Market makers are getting rich off this trading. Robinhood's customers are not hurting from this.
    - madenine 6y ago
      Point taken. Still, as far as risk to RH is concerned - if this kicks off a change via their customers, regulators, or legal action the change is probably not in their favor.
- JumpCrisscross 6y ago
  > if it's your money, I don't see how it's risky for RH. FINRA arbitration, and the FINRA complaint process, is highly sympathetic to retail clients. When these clients lose money on GME et al, there will almost certainly be a class-action lawsuit for some fraction of their collective losses. And Robinhood's lawyers will almost certainly recommend they settle. That is the risk, beyond margin lending and options settlement, they are seeking to mitigate. (Also, when that money is lost, there is a decent chance Robinhood will be fined by half the regulators on this planet for inducing people to overtrade through its gameified interface or something like that.)
grive 6y ago
If it was the answer, then RH could have instead only forbidden margin trades and restricted to cash. Additionally, other retail brokers selling to Citadel Capital have done the exact same (Schwab comes to mind, but not only). Other brokers however (fidelity), have not. If the short squeeze is to happen tomorrow, this seems an unlikely coincidence that those retail brokers affiliated with Citadel Capital tool positions that would ultimately deflate the stock. I don't see how GP can assure that no short sellers is behind those moves.

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.
  - hindsightbias 6y ago
    Quite a bit of difference from markets being influenced by outside events and the market being influenced by your gamified platform.
  - argonaut 6y ago
    > most people assuming the stock market would rebound No, people / pundits / the media were widely proclaiming that the healthcare system would be overrun and the next great economic depression was upon us. Most people assumed the stock market would continue to fall.
- imtringued 6y ago
  Buy high, sell never. Everyone who bought the stock has already written it off as a complete loss. Everyone is banking on being worse off than before. They still buy it for the entertainment value and Robinhood denied them that.
baking 6y ago
The risk to Robinhood is GME crashing by more than the amount of the margin. A large brokerage that has been through crashes before has systems in place, and can spread the remaining risk around. If a large portion of your customers are invested in a handful of stocks, their risk becomes your risk. Also, other customers of Robinhood who have cash that is in an uninsured account are also at risk even if they are not invested in GME.
- DennisP 6y ago
  Then why not shut down margin purchases of GME, but not cash purchases?
  - baking 6y ago
    There was some speculation that they didn't have that capability. Brokerage firms should have the ability to restrict margin trading in particular stocks, but what if Robinhood couldn't, at least not on short notice? There could is also the concern about new accounts trading in GME with funds that might be suspect. It's a risk you don't want to take if you don't know your customers and the bubble is ready to burst at any moment.
    - sweettea 6y ago
      They did shut down margin trading in GME and others several days ago, this is a further step atop it.
      - baking 6y ago
        Did they issue margin calls?
MrMan 6y ago
aggregate customer exposure means that massive simultaneous losses by retail traders following the herd can mean losses for RH, which they want to prevent.
beagle3 6y ago
It does because they let them buy on margin. Interactive Brokers hiked the long margin to 100% (and short to 300%) which is a reasonable way for a broker to behave. Killing the ability to buy is not.
- gmethowaway 6y ago
  IB doesn't allow you buy GME even w/o margin account.
  - seniorThrowaway 6y ago
    I don't think that is correct. They stopped options trading in it not 100% cash backed stock buying or 300% cash backed shorting. I think their position is fairly reasonable and as an account holder there I don't want people going crazy on leverage on this amount of volatility.
    - simplerman 6y ago
      Got email from IB that you cannot open new positions on GME this morning.
      - Trias11 6y ago
        Probably not even long positions and probably just purely for liability reasons to stay away from the mess when shit hits the fan
    - gmethowaway 6y ago
      That's what they advertise via Twit. But if you try to buy even 1 stock of GME on non margin account (our own money only) it doesn't allow you to do that. I have a screenshot for that if you want. And customer support line is overloaded as expected.
    - seniorThrowaway 6y ago
      ok that is unfortunate I didn't go all the way through with trying to actually buy. I'm a long time customer and they were definitely better before they went public

kart23 6y ago

Why can't they just stop the people on margin from buying gme? That would be reasonable. But if it's your money, I don't see how it's risky for RH.

madenine 6y ago
RH makes money by selling data to investment firms, not off individual trades/fees. If their customers - the firms that pay them, not app users - see the RH platform as a threat to their business they could pull the plug[0]. Or if this prompts regulators to examine RH and similar products. The risk isn't in the outcomes of options/trades; its risk to their business model. [0] RH's customer are actually market makers, who by and large will be profiting heavily off of this.
- JumpCrisscross 6y ago
  > If their customers - the firms that pay them, not app users - see the RH platform as a threat to their business This point has been made repeatedly elsewhere but it bears repeating. Market makers are getting rich off this trading. Robinhood's customers are not hurting from this.
  - madenine 6y ago
    Point taken. Still, as far as risk to RH is concerned - if this kicks off a change via their customers, regulators, or legal action the change is probably not in their favor.
JumpCrisscross 6y ago
> if it's your money, I don't see how it's risky for RH. FINRA arbitration, and the FINRA complaint process, is highly sympathetic to retail clients. When these clients lose money on GME et al, there will almost certainly be a class-action lawsuit for some fraction of their collective losses. And Robinhood's lawyers will almost certainly recommend they settle. That is the risk, beyond margin lending and options settlement, they are seeking to mitigate. (Also, when that money is lost, there is a decent chance Robinhood will be fined by half the regulators on this planet for inducing people to overtrade through its gameified interface or something like that.)

grive 6y ago

If it was the answer, then RH could have instead only forbidden margin trades and restricted to cash. Additionally, other retail brokers selling to Citadel Capital have done the exact same (Schwab comes to mind, but not only). Other brokers however (fidelity), have not. If the short squeeze is to happen tomorrow, this seems an unlikely coincidence that those retail brokers affiliated with Citadel Capital tool positions that would ultimately deflate the stock. I don't see how GP can assure that no short sellers is behind those moves.