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The loophole here is that all new Robinhood accounts are margin accounts by default. You have to go through a process to switch from a margin account to a cash
by Kranar 6y ago
The loophole here is that all new Robinhood accounts are margin accounts by default. You have to go through a process to switch from a margin account to a cash account and I suspect 95% of Robinhood's customers have no idea what the difference is or why they'd ever want to do that.
So Robinhood technically is allowed to do this as per the letter of the law, and now the question is whether Robinhood is violating any fiduciary duties they have to their customers.
- lordnacho 6y agoBut how many of the accounts have larger positions in GME than equity? It doesn't make sense to margin call or liquidate someone who is good for the whole amount. Also if someone has some leverage it's not reasonable to liquidate them completely.
- forbiddenvoid 6y agoThis is exactly why people should be outraged. The type of risk that requires a margin call isn't present by just holding long positions in a security. Unless you are trading options or selling short, your equity is equal to your positions, and no margin call should be necessary. They are literally using the margin call mechanic to force closures in positions that have no risk.
- jquery 6y agoUnlikely. Robinhood has something called ‘instant deposits’ which creates massive risk when used to buy something like GME with unsettled funds.
- freeone3000 6y agoAn unsettled ACH withdrawal that you initiated does not cause massive risk. It's a two-day float. There's no way to undo an ACH transfer; it's guaranteed funds. Even if you lose all of it, it doesn't matter, since they'll be paid back once the check clears.
- Kranar 6y agoI am in total agreement with you, this is outrageous. I'm only speculating as to what I believe Robinhood's position is, which is that these accounts are technically margin accounts and so Robinhood has the right to liquidate them as per the account "agreement".