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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.

by kart23 6y ago

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.)
jartelt 6y ago
One issue is a lot of retail people bought GME options. If those expire in the money, these people will be on the hook to buy 100s of shares of GME and likely don't have the cash on hand to purchase the shares (which leave RH holding the bag). On one hand, you could say RH shouldn't let people buy options if RH doesn't believe those people can pay up when the option expires. On the other hand, you have people buying options who maybe don't understand that you need cash to buy the shares if the option expires in the money.
- simplerman 6y ago
  If you bought options, you don't have to exercise them. They could expire worthless.
pvarangot 6y ago
That's whay Schwabb did and what any serious broker would do if there's volatility. If you have cash you should always be allowed to play if you are not doing anything illegal. If it's dangerous, it's your cash not theirs.

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.

by 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.)

jartelt 6y ago

One issue is a lot of retail people bought GME options. If those expire in the money, these people will be on the hook to buy 100s of shares of GME and likely don't have the cash on hand to purchase the shares (which leave RH holding the bag). On one hand, you could say RH shouldn't let people buy options if RH doesn't believe those people can pay up when the option expires. On the other hand, you have people buying options who maybe don't understand that you need cash to buy the shares if the option expires in the money.

simplerman 6y ago
If you bought options, you don't have to exercise them. They could expire worthless.

pvarangot 6y ago

That's whay Schwabb did and what any serious broker would do if there's volatility. If you have cash you should always be allowed to play if you are not doing anything illegal. If it's dangerous, it's your cash not theirs.