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> If a customer falls down on a trade, it is ultimately liable.... Robinhood induced them to buy through its gameified interface Why would robinhood be any mor

by sparrc 6y ago

> If a customer falls down on a trade, it is ultimately liable.... Robinhood induced them to buy through its gameified interface Why would robinhood be any more liable than other online traders like Fidelity or etrade? > What I can guarantee is nobody shorting GameStop got Robinhood to pull the plug. How can you guarantee that? Robinhood likely routes most of it's trades through citadel, which has informed partners it will not be fulfilling GME or AMC or BB trades. And it turns out Citadel is also a hedge fund that has massive short positions on GME.

pacetherace 6y ago
Every brokerage house has this problem. If their client goes bankrupt, then the brokerage house has to eat the loss.
cjlars 6y ago
They would have different risk profiles depending on what their clients are actually doing. RH probably has much greater net exposure than Fidelity since they have a greater share of meme investors in their customer base. Fidelity definitely has a less gameified interface as well. Corporate risk controls are also not a hard science, different risk teams can and do come to different conclusions on the same issue.
JumpCrisscross 6y ago
> Why would robinhood be any more liable than other online traders like Fidelity or etrade? Every brokerage house ultimately vouches for their clients. Robinhood has extra exposure because clients could claim its interface induced them to overtrade. > Robinhood likely routes most of it's trades through citadel Do we have a source for this? Also, Citadel just made money bailing out Melvin Capital. The short squeeze let them buy assets at dimes on the dollar. Assets which do not include GameStop shorts. > which has informed partners it will not be fulfilling GME or AMC or BB trades Former market maker. When trading got crazy we'd take profits. When it got inexplicable, we'd pull the plug. If we didn't, risk would. In this case, there is the additional factor of political risk--you don't want to be making millions of dollars off GameStop at its peak when that's going to cost you tens of millions of legal fees in front of Congress. A simple explanation for Robinhood's behavior might be that their customers, the market makers, backed away from paying for this order flow. All this said, I'd be highly pissed if my broker did this to me. But Robinhood customers have known since the beginning they weren't the customer.
- mthoms 6y ago
  >> Robinhood likely routes most of it's trades through citadel >Do we have a source for this? Yes. https://cdn.robinhood.com/assets/robinhood/legal/RHS%20SEC%20Rule%20606a%20and%20607%20Disclosure%20Report%20Q3%202020.pdf https://cdn.robinhood.com/assets/robinhood/legal/RHS%20SEC%2...
whimsicalism 6y ago
Citadel Securities is a market maker. Do you have any evidence that Citadel has un-hedged "massive short positions on GME"? I find it nuts how this has transformed into a populist thing.
- jmalicki 6y ago
  If you buy a share of GME from Citadel Securities, that may typically result in an immediate unhedged short position at Citadel, if they weren't already holding it. Normally, a market maker might then close it by buying a share from someone trying to sell. But in a massively one-way market like GME, it's quite likely that they build up a large enough unhedged massive short position that they say "no, we're not taking on any more risk" and communicate that to Robin Hood.
  - whimsicalism 6y ago
    They immediately hedge it. If the market for GME is "one-way" (it's not, people are shorting), they might also hedge the sale by buying more exotic financial instruments and correlates of the GME price. > they say "no, we're not taking on any more risk" and communicate that to Robin Hood. Maybe, although they would probably do that when their ability to hedge started breaking down, not when they'd already acquired massive short positions. More likely, to me, is that they would just increase the bid-ask price spread continuously as their ability to hedge degrades.
    - JumpCrisscross 6y ago
      > They immediately hedge it This assumes continuous liquidity. Dangerous assumption to make in choppy markets. It is not uncommon for markets to gap up or down discontinuously. You look at the market and see bid 899 at 901, buy some shares for 898, offer them at 890 and find the market is now 125 at 901.
      - deleted 6y ago
        [deleted]

by sparrc 6y ago

pacetherace 6y ago

Every brokerage house has this problem. If their client goes bankrupt, then the brokerage house has to eat the loss.

cjlars 6y ago

They would have different risk profiles depending on what their clients are actually doing. RH probably has much greater net exposure than Fidelity since they have a greater share of meme investors in their customer base. Fidelity definitely has a less gameified interface as well. Corporate risk controls are also not a hard science, different risk teams can and do come to different conclusions on the same issue.

JumpCrisscross 6y ago

> Why would robinhood be any more liable than other online traders like Fidelity or etrade? Every brokerage house ultimately vouches for their clients. Robinhood has extra exposure because clients could claim its interface induced them to overtrade. > Robinhood likely routes most of it's trades through citadel Do we have a source for this? Also, Citadel just made money bailing out Melvin Capital. The short squeeze let them buy assets at dimes on the dollar. Assets which do not include GameStop shorts. > which has informed partners it will not be fulfilling GME or AMC or BB trades Former market maker. When trading got crazy we'd take profits. When it got inexplicable, we'd pull the plug. If we didn't, risk would. In this case, there is the additional factor of political risk--you don't want to be making millions of dollars off GameStop at its peak when that's going to cost you tens of millions of legal fees in front of Congress. A simple explanation for Robinhood's behavior might be that their customers, the market makers, backed away from paying for this order flow. All this said, I'd be highly pissed if my broker did this to me. But Robinhood customers have known since the beginning they weren't the customer.

mthoms 6y ago
>> Robinhood likely routes most of it's trades through citadel >Do we have a source for this? Yes. https://cdn.robinhood.com/assets/robinhood/legal/RHS%20SEC%20Rule%20606a%20and%20607%20Disclosure%20Report%20Q3%202020.pdf https://cdn.robinhood.com/assets/robinhood/legal/RHS%20SEC%2...

whimsicalism 6y ago

Citadel Securities is a market maker. Do you have any evidence that Citadel has un-hedged "massive short positions on GME"? I find it nuts how this has transformed into a populist thing.

jmalicki 6y ago
If you buy a share of GME from Citadel Securities, that may typically result in an immediate unhedged short position at Citadel, if they weren't already holding it. Normally, a market maker might then close it by buying a share from someone trying to sell. But in a massively one-way market like GME, it's quite likely that they build up a large enough unhedged massive short position that they say "no, we're not taking on any more risk" and communicate that to Robin Hood.
- whimsicalism 6y ago
  They immediately hedge it. If the market for GME is "one-way" (it's not, people are shorting), they might also hedge the sale by buying more exotic financial instruments and correlates of the GME price. > they say "no, we're not taking on any more risk" and communicate that to Robin Hood. Maybe, although they would probably do that when their ability to hedge started breaking down, not when they'd already acquired massive short positions. More likely, to me, is that they would just increase the bid-ask price spread continuously as their ability to hedge degrades.
  - JumpCrisscross 6y ago
    > They immediately hedge it This assumes continuous liquidity. Dangerous assumption to make in choppy markets. It is not uncommon for markets to gap up or down discontinuously. You look at the market and see bid 899 at 901, buy some shares for 898, offer them at 890 and find the market is now 125 at 901.
    - deleted 6y ago
      [deleted]