15 ms·

Robinhood is automatically initiating GME sell orders on users' behalf

450 points by arkadiyt 6y ago

deleted 6y ago
[deleted]
captainarab 6y ago
This is blatant anti-competitive behavior on the part of Robinhood and Citadel. As i say elsewhere - this margin call was FORCED by RH because they blocked users ability to buy shares as Citadel + others were ladder short selling to artificially lower the stock price of GME, forcing the margin call. This is horrific, criminal, and should be prosecuted. Ultimately, they know that their SEC Fine will be less than the $50B+ in losses they face from their irresponsible naked short selling. Did we learn nothing in 2008? Are we just going to continue to allow wall street to get away with fleecing everyone else in America / the world?
- hartator 6y ago
  > Did we learn nothing in 2008? Yep, that we are going to have to pay their losses.
  - miloignis 6y ago
    Something else we learned from 2008 is that the government and taxpayers made money on the bailout because it was paid back with interest, see sources like: https://projects.propublica.org/bailout/ https://projects.propublica.org/bailout/
- quotemstr 6y ago
  > Are we just going to continue to allow wall street to get away with fleecing everyone else in America / the world? Well yeah. Why would you expect anything else? And if anyone complains about it, the complaints will get scrubbed off the internet. And if you go to private messengers to complain, your session keys will get escrowed because "terrorism" or "misinformation" or something and you'll be banned. Keep in mind that the WallStreetBets Discord server was banned for "hate speech" right in the middle of all the recent drama. Does anyone actually believe that was the real reason? It's because of shenanigans like this that I'm categorically against any sort of control whatsoever over flows of information.
  - adventured 6y ago
    It won't be long before the Biden Administration is declaring members from WallStreetBets to be domestic terrorists acting in concert to attack the US financial system (it'll be part of the broader War on Domestic Terrorism program that they've begun). The powers that be in DC and on Wall Street will never allow this kind of action to go unchecked indefinitely. They'll probably make it a crime to organize large groups of individuals to herd buy/short a stock.
    - quotemstr 6y ago
      > They'll probably make it a crime to organize large groups of individuals to herd buy/short a stock. You'd better believe that something will be done to ensure that the rabble can't insult their betters like this ever again.
- joe_the_user 6y ago
  A stock market is a high stakes gambling system. The smart and the powerful win. You'll never limit winners to just the smart. If you someone did for a period of time, those smart people would become powerful and decide to limit other smart people. But so what if you did allow just smart people win? Most people aren't that smart and you'd wind-up with a fleecing. So making this game fair isn't particularly in the average not-genius-with-nerves-of-steel person's interests. It's more in the average person's interests to have an index-traded-funds go up a reliable amount each year. Fleecing Reddit geeks isn't fleecing everyone in America. Edit: My point is - sure it might be against the rules but this affair is between smart speculators and big speculators. Saying it's crime against everyone is ridiculous.
  - twox2 6y ago
    I disagree with you. "It's more in the average person's interests to have an index-traded-funds go up a reliable amount each year." You are saying that people are too dumb to decide what to do with their own money, and that's not your call. The reason this is a crime against everyone is because there's allegedly a "free market", but moments like this show that the emperor has no clothes and that in fact that's not the case.
- tmaly 6y ago
  https://www.reddit.com/r/occupywallstreet/ https://www.reddit.com/r/occupywallstreet/
jxi 6y ago
If they weren't leveraged, this is basically theft.
jcfrei 6y ago
Most likely margin calls.
- paulgb 6y ago
  Yep. I’ll repeat what I said in another thread: It’s really kind of ironic. People are knee-jerk blaming RH for closing margin positions because they didn’t fully understand how they work and the risks involved. Simultaneously, the same people are blaming RH for stepping in the way of what very certainly would have turned into a bad trade for a lot of people. I don’t take RH’s side but it’s hard to see a winning play for them, it’s damned-if-you-do-damned-if-you-don’t.
  - Jouvence 6y ago
    Nonsense. People are allowed to make bad trades every second of every day without protection from the platform; but now they develop a conscience and save people from themselves? If this is true, RH and other platforms pulling smiliar stunts should be sued out of existence. Might not be a bad idea to significantly increase taxation on derivatives trading too.
    - paulgb 6y ago
      It’s easy to develop a conscience (or the functional equivalent) when you know regulators and press have you in their sights, so yes.
    - mikestew 6y ago
      but now they develop a conscience and save people from themselves? No, RH is saving their own asses from the poor financial decisions of their clients. They don't want to be on the hook when those accounts crater along with GME. If this is true, RH and other platforms pulling smiliar stunts should be sued out of existence. Take it up with the SEC. Oh, wait, the SEC is at least partially responsible for such rules being in place. It's a conspiracy, I tell ya!
  - Alupis 6y ago
    This is the same RH that extended Margin accounts to complete amateur investors with practically no vetting before-hand. People that think they'll get rich off pocket-change investments, are not in a position to understand trading on margin, nor it's risks.
akavi 6y ago
Are these users trading on margin?
- Animats 6y ago
  Yes, that's the big question here. If it's a margin trade, the broker is also a lender and has some discretion. If it's a cash trade, the broker has no risk and should not interfere. Does anyone know? This matters.
- koolba 6y ago
  100% they're on margin. Otherwise the broker would have no right to make trades on their behalf. In contrast, once you're on margin you give them the right to liquidate any part of your portfolio, at any time, to cover your margin balance. What they can't do is liquidate beyond the margin balance. Once they've covered the balance they would have to stop closing out your positions.
geek_at 6y ago
Wow if true, this is a huge violation of user trust
- arbitrage 6y ago
  from robinhood? are you kidding, or what?
  - dang 6y ago
    Please stick to posting substantive comments.
umvi 6y ago
> due to the unreasonable risk involved in brokering your position, we have closed your X shares of GME for an average price of Y What in the world?? "In order to protect you from yourself, we have taken away your free will. Thanks!"
- arbitrage 6y ago
  you are using their brokerage. their rules. free will has nothing to do with it.
  - leesalminen 6y ago
    It's not possible for someone like me to purchase a publicly traded security without going through a broker. So what you're saying is that market participants can only participate if they do what the people making the market want?
  - ehsankia 6y ago
    Well they now have 1 star on both app stores and can say goodbye to their upcoming IPO. While it is true their rules may have specified such a situation (I'm not a lawyer and not sure how legal this is), they are still a platform that rely on user trust, and they just destroyed any they had. You can't really call yourself "robin hood" when you bow over to the first big guy that shows up.
- avree 6y ago
  Yes, that is how it works when you buy stock on margin and do not have the cash to cover. When the price dips, the risk increases to the broker, and so they may liquidate your position to cover.
  - umvi 6y ago
    I see. I think that's a critical piece of context missing in that tweet: "Note: these particular shares were bought on margin. Buying on margin is borrowing money from a broker to purchase stock" I thought RH was forcibly selling a customer's stocks that the customer had previously purchased with their own money.
eterm 6y ago
Browing the top of reddit right now is really reminiscent of /r/The_Donald, particularly the shift from a bunch of 'ironic' jokers to conspiracy theories and shouty chest beating and calls for upvotes. I'd treat anything like this with a huge pinch of salt.
- dageshi 6y ago
  In the words of Agent Kay from MiB "A person is smart. People are dumb, panicky dangerous animals and you know it."
- czechdeveloper 6y ago
  Is it conspiracy theory, when it's true?
  - golemiprague 6y ago
    Yes, something can be true but not proven. I for example believe that the elections were rigged and that Trump actually won. It could be true but I got not proof so it stays in the realm of theory.
- greenshackle2 6y ago
  Not just Reddit. It's here too. It's wild to see people being whipped into a frenzy in real time. I'm following the discussions a bit, lots of comments by people spreading conspiracy theories, comments asking for evidence are just downvoted, or met by the conspiracy theorist's favorite, "do your research", comments spreading disinformation like "citadel owns robinhood" with a tweet as the only source, people who have no idea how market functions talking about "naked shorting", etc. The disinformation spreads faster than it takes to rebut it.
  - deleted 6y ago
    [deleted]
  - Railsify 6y ago
    Someone not wanting to explain what is in 50 news articles to new commenters does not make them a conspiracy theorist, why should they do your google searches for you?
captainarab 6y ago
this is despicable.
stephanerangaya 6y ago
I saw this on Twitter and couldn't find any sources to confirm that the e-mail screenshot is real. Take this with a pinch of salt, it might be fake.
- ttt0 6y ago
  Blue checkmarks seem to confirm this: https://twitter.com/dreamwisp/status/1354865709998723072 https://twitter.com/dreamwisp/status/1354865709998723072 edit: My bad, it's "just" cancelling their orders, not selling anything on their behalf.
  - aqme28 6y ago
    A canceled buy order is very different from an automatic sale. Buy orders can be canceled all the time for various reasons, though in this case it's likely Robinhood's well-documented purchase restrictions. Also that user does not have a blue check.
    - ttt0 6y ago
      Yes, I noticed it and already edited my comment, my bad. The person below is a blue checkmark.
RGamma 6y ago
Is this the prelude to https://www.politico.com/magazine/story/2014/06/the-pitchforks-are-coming-for-us-plutocrats-108014 https://www.politico.com/magazine/story/2014/06/the-pitchfor...?
avree 6y ago
He was margin called. This is literally how margin works, has nothing to do with GME or the Robinhood furor.
- hahla 6y ago
  That was my thought process as well, but no where in the app message or email does it say the position was closed out due to a margin call.
  - short_sells_poo 6y ago
    If you have a margin account, the broker calculates a risk based margin and can close any position they wish if they deem it a risk. They don't have to give you any justification. With increased buying power comes increased risk. In some sense this was basically inevitable. Robinhood allowed (perhaps even encouraged) a huge mass of clueless investors to flood into the market. As long as the going was good, nobody complained, but as soon as things go south, people have started to learn expensive lessons. This is not the first time this has happened. Almost every single market stress for the past 20 years has caused grief to retail in some way as they were caught out on something they didn't know about. One clear example that comes to mind is when the Swiss national bank has removed the currency peg and a whole bunch of FX retail has made the expensive discovery that stop limit orders are not guaranteed to execute...
    - dingaling 6y ago
      Maybe it's a good time to stop calling them investors and instead call them speculators. They're not investing in anything, their money doesn't contribute to any form of progress.
      - llampx 6y ago
        Welcome to the stock market
      - elihu 6y ago
        I assume Gamestop the company (and all the people they employ) are better off than they were a week ago. Maybe there won't be many lasting positive effects from having their stock briefly worth a lot more than it rationally should, but on the other hand you could make a reasonable case that they have been significantly harmed by short sellers, and that if a bunch of hedge funds lost their shirts because of their short positions they'll be more careful about shorting Gamestop or any other company in the future. Maybe that's a good thing.
deleted 6y ago
[deleted]
quotemstr 6y ago
Robinhood's behavior here is wicked and wrong. Yes, Robinhood's EULA technically allows them to do this wicked thing. The same EULA says that Robinhood can't be sued over it or anything else. It's about time we talk about how it's not in the public's interest to allow companies to put arbitrarily user-hostile terms in their user agreements.
- freeone3000 6y ago
  EULA allows them to close out a margin call, but not sell shares held for a client. Selling held shares without a standing order from the client is illegal, no matter what an EULA says.
- jrochkind1 6y ago
  Are you looking at a particular clause in the EULA? Where do we find the EULA?
- SpicyLemonZest 6y ago
  The challenge in this case is that many people want this. They see it as only fair that the little guy should be allowed to invest on the same (sometimes user-hostile) terms as big institutions do. If you pass a new regulation saying that margin calls feel scummy so nobody can offer small investors a margin account, is that really a win for small investors?
imperio59 6y ago
It is in their T&Cs that they can do this if your account is trading on margin. If not, then it feels like there's a potential for a class action lawsuit.
captainarab 6y ago
For anyone saying, "Most likely trading on margin" Remember: This morning Robinhood conspired with Citadel to halt trading amid a short ladder sell to drive the price lower, allowing shorts to cover their losses with no competition. This is blatant market manipulation and anti competitive behavior, and must be stopped. Why does everyone insist on protecting billionaires who insist on playing the game with a different set of rules than the rest of us?
- jrochkind1 6y ago
  OK, but they are almost certainly also trading on margin right? You trade with robinhood's money, then they can decide not to lend it to you anymore for nearly any reason they want. ¯\_(ツ)_/¯
  - captainarab 6y ago
    Sure, no argument from me on here. You have to admit, though - that is disingenuous. Those plays were profitable, no need to call them (unless there has been irresponsible behavior on the behalf of the broker)
    - short_sells_poo 6y ago
      That is entirely up to the broker. They make no guarantees to you that they'll underwrite your risk taking with no limits. If you don't want this to happen, go to a reputable broker and make sure you are not trading on margin. This is not rocket science, but does require a basic level of understanding.
      - captainarab 6y ago
        I agree that this is the technically correct definition of how margin is typically utilized, and that investors should be prepared for this in the case of high volatility. The fact does remain, though, that the way the data is presenting itself seems to indicate that there was disingenuous behavior on the behalf of market makers and a number of hedge funds. To be seen, I guess.
robot1 6y ago
This is ONLY if you enable margin trading via Robinhood Gold - they increased their margin requirements recently on GME and this will not happen to you if you are trading on cash.
- sjs382 6y ago
  It's not just Robinhood Gold. All accounts are "Robinhood Instant" by default. You need to permanently opt-out of Robinhood Instant (or wait for deposits/trades to settle) to opt-out. Edit: to add a link. This info is fairly well buried: https://robinhood.com/us/en/support/articles/robinhood-accounts/ https://robinhood.com/us/en/support/articles/robinhood-accou...
  - avree 6y ago
    Yes, but "Robinhood Instant" is limited to a subset of the funds you are depositing. It is set up as a margin account to allow them to trade on your behalf before the money hits your Robinhood account. But the money will be hitting, so you will have cash to cover the trade. It's not the same as actual margin trading (where, for example, in this case, the user did not have cash to cover and so his position was liquidated by the broker.)
plasma 6y ago
This feels like RH is going to go under if they don’t make this move? Are they holding a lot of risk by not doing this or something? And what repercussions would they face, surely they’ve flagged that risk and are doing it anyway.
- lainga 6y ago
  Some people have speculated (big sign reading SPECULATION SPECULATION NO PROOF above this post) it might make sense if RH was trading for itself and taking the other side of its client's trades, like Goldman was accused of doing in '08. In which case they are in big hot water. ed. yes, on the chance that this wasn't just a margin call
- markdown 6y ago
  > And what repercussions would they face Nothing worth worrying about. Every single case in the financial sector over the past two decades has resulted in fines that are a fraction of the profits. I mean, you had banks laundering money for cartels, Malasians were looted, etc etc... every single time they fine the culprits a tiny fraction of their profits. The US has made criminal activity profitable, even if you get caught. So Citadel and RH probably just made the smart move. Screw the rules, because the punishment for breaking them will be more than worth it.
  - captainarab 6y ago
    100% agree. Pretty sad to see most of HN willfully ignoring this fact and jumping to the defense of Hedge Funds and the billionaire class.
    - deleted 6y ago
      [deleted]
    - wyre 6y ago
      Reading HN this whole month has been disheartening after reading so many comments defending the insurrection and Parler.
deleted 6y ago
[deleted]
dang 6y ago
For pointers to other vertices of this story graph, see https://news.ycombinator.com/item?id=25933543 https://news.ycombinator.com/item?id=25933543.
steventmhess 6y ago
13G recently filed shows larger holders liquidating -- couple that to the crap financials in GME, then you can see the writing on the wall. However, insiders will be roasted by the DOJ. Liquidate, restructure, hose commons. It's GME -- it's a dead company trapped in yesteryear.
cj 6y ago
Sounds like a margin call [0] which is absolutely “business as usual” and not something to be upset over. Some of the margin calls may have been triggered earlier than investors may have anticipated given that (I believe) Robinhood recently adjusted their margin requirements for GME. (It’s also normal for brokers to raise margin requirements on particularly risky stocks, which GME clearly is at the moment) [0] https://www.investopedia.com/terms/m/margincall.asp https://www.investopedia.com/terms/m/margincall.asp
DevKoala 6y ago
This story has so many twists. I just bought some today to raise the middle finger after I noticed politicians batting for the hedge funds. I was confident I would lose it all, but now I am actually thinking this will go to court and I could make some money.
zby 6y ago
The only not silly response to that silly situation would be to GME to quickly sell enough stock to stabilize the price at some reasonably high valuation and them maybe use money from that to do some stock buybacks later if it falls to an unreasonable low level.
snorrah 6y ago
How bad for RH is this exactly, if some people affected weren’t margin trading? https://twitter.com/themaxburns/status/1354874931092348933 https://twitter.com/themaxburns/status/1354874931092348933
- ehsankia 6y ago
  The automatic sell aside, isn't just restricting trades on the given stocks just bad enough already?
deleted 6y ago
[deleted]
spir 6y ago
Robinhood's behavior shows why blockchain-based finance, with its censorship resistance and permissionless participation, is the future. It's already the case that many of ethereum's DeFi apps can't betray users. Unlike a centralized financial institution, a DeFi app's smart contract code can be shown to be a public API that treats all users fairly and correctly, with no admin keys or back doors. Smart contracts can fail for other reasons, such as bugs or bad economics. But, what they can't do is call up their friends and ask them for some favoritism. In DeFi, we say that smart contracts that can't betray users are "credibly neutral". https://nakamoto.com/credible-neutrality/ https://nakamoto.com/credible-neutrality/ (by Vitalik Buterin) As an example, one important DeFi app that is credibly neutral is Uniswap, a decentralized trading exchange that did $700M in volume yesterday. The main Uniswap app is here https://app.uniswap.org/ https://app.uniswap.org/. Financial stats for Uniswap are available here https://info.uniswap.org/ https://info.uniswap.org/. Yesterday, Uniswap made $2M in fees for its liquidity partners (anyone can provide liquidity). Fee data can been seen here https://cryptofees.info/ https://cryptofees.info/. Many tokens on Uniswap are pump-and-dumps or projects that won't succeed. Anyone can list any token. Yet, users seem to love the control and reliability given to them by Uniswap and other DeFi apps.
mikestew 6y ago
Yeah, brokerages will do that if the stock takes a big drop like it did today. Oh, did you not read that part of your margin agreement? According to thread, some are just now getting to that part. Those same folks shouldn't have been trading GME on margin. If it's any consolation, I've had Fidelity, IB, et. al., do the exact same thing when a trade turned sour. Difference is, I didn't run to Reddit to display my ignorance to the world.
- Tenoke 6y ago
  Are you sure you didn't just have a margin call up to the margin maintenance rather than get everything on margin liquidated immediately like here?
  - mikestew 6y ago
    You know, you might be right. Last time I had a margin call was a long time ago. Then again, I don't recall ever trading a stock on margin that swings 100% either direction in one day. Speaking of margin calls, a brokerage usually gives you the courtesy call saying, "either you liquidate (or give us more money to cover), or we'll do it for you", but on GME I could see skipping that call given the volatility.
- simonsaidit 6y ago
  The difference here is they prevented people from starting new positions while still allowing closing them .. effectivly being the cause of the drop.
  - stickfigure 6y ago
    > cause of the drop Not sure I understand this perspective. GME was a balloon floating around in a needle shop.
    - gruez 6y ago
      Yeah, but the wishful thinking in the other threads I've seen was that by the time it popped, all (or most) of the holders would be the short sellers, not the wsb people who pumped it up. In that sense it would be "fine".
firebaze 6y ago
Smelled like scam, is a scam. So glad I didn't fall into the robinhood trap, I was really close to. Edit: yes this comment isn't related to the linked article.
- mikestew 6y ago
  Fidelity and every other brokerage of which I have knowledge would let you do the same thing (get into a bad trade, and then liquidate your position when you exceed margin limits). This isn't a "Robinhood" thing, this is an "ignorant gamblers who shouldn't be allowed anywhere near a margin account" thing.
  - dbnoch 6y ago
    except for the line where they prevented trading on said stock.
    - mikestew 6y ago
      I believe you mean they prevented buying. Obviously the positions could be liquidated (sold).
  - Animats 6y ago
    Yes. Understand that if you buy on margin, and the stock goes down too much, you owe the broker money. The broker can ask you to deposit more money to cover a margin call, or sell out your position. What's unusual about RobinHood is that they make buying on margin very easy. It's a feature of a "Robinhood Gold" account.[1] "You can try Gold for free for the first 30 days. Sign up anytime from your account settings." This gets people trading on margin who probably shouldn't be trading on margin. Many of them are going to be busted down to zero. Those prices aren't going to stay up once the fad is over. Here's RobinHood's margin agreement.[2] [1] https://robinhood.com/us/en/support/articles/gold-overview/ https://robinhood.com/us/en/support/articles/gold-overview/ [2] https://cdn.robinhood.com/assets/robinhood/legal/RHS%20Customer%20Margin%20and%20Short%20Account%20Agreement.pdf https://cdn.robinhood.com/assets/robinhood/legal/RHS%20Custo...
  - 6y ago
thebean11 6y ago
This is probably legit, unlike delisting it. You are taking a loan from them with the understanding that they can (in some circumstances) liquidate your investment to lower their own risk. This absolutely seems like one of those circumstances.
- AnHonestComment 6y ago
  A margin call on a stock you halted trading in smells like fraud. It’s like the bank banning selling your home then repossessing it when the value falls. Crooked entirely.
  - Lewton 6y ago
    I agree that it’s crooked to block buying of gme stock, but the resulting margin calls are well within the risks you agree to once you start trading with borrowed money
  - thebean11 6y ago
    > It’s like the bank banning selling your home then repossessing it when the value falls. Apples and oranges. If you bought a house on margin, the way a brokerage defines margin, they would absolutely be allowed to do that. Margin and mortgage are fundamentally different types of loans. I agree that halting buys was absolutely wrong. Definitely see where you're coming from, if you look at the two actions together..it doesn't paint a very pretty picture.
    - cwkoss 6y ago
      Isn't buying a house on margin... basically just a normal mortgage?
      - Animats 6y ago
        You don't get a margin call if your house or car is underwater. You can just keep making the payments until you own it.
weird-eye-issue 6y ago
It is called a margin call. Nothing specific to Robinhood or to GME.
xibalba 6y ago
Interesting counter point to the "elites-pulling-levers-to-protect-hedgies" conspiracy theory: https://twitter.com/arampell/status/1354859474658312196?ref_src=twsrc%5Etfw https://twitter.com/arampell/status/1354859474658312196?ref_...
- ummonk 6y ago
  That's not a counter point. The IB Chairman explicitly said they put in the restrictions to protect market makers rather than their customers: https://www.youtube.com/watch?v=7RH4XKP55fM https://www.youtube.com/watch?v=7RH4XKP55fM
  - xibalba 6y ago
    So, point blank, you believe these restrictions were implemented to protect hedge funds and financial elites? Do you not believe there could be simpler explanations to brokers halting buying of the meme-stonk tickers that are 1) explained by their own financial incentives and risks, and 2) not by a shadowy conspiracy of financial elites pulling levers behind the scenes?
    - platz 6y ago
      The reason he gave in that video was because of margin ("the cust not being able to pay"), which doesn't explain not being able to buy with cash.
  - acover 6y ago
    Forgive me I don't know a lot about this. I think he is talking about protecting intermediaries like the clearing houses and the exchanges themselves. The exchanges only work if counter party risk doesn't exist. To solve this, the exchanges back stop every trade and act as one common counter party [0]. He is concerned that there is a $15 billion loss out there due to options on GME. This could wipe out the intermediates guaranteeing the trades. Further that $15 billion can grow arbitrarily as GME is in a short squeeze and disconnected from reality. [0] - https://www.cmegroup.com/clearing/risk-management.html https://www.cmegroup.com/clearing/risk-management.html
joering2 6y ago
From [1]: On September 2, 2020, the Wall Street Journal reported that Robinhood was under SEC investigation for failing to fully disclose selling clients' orders to high-speed trading firms, with a potential $10M+ fine.[6] Robinhood paid $65M to settle the SEC investigation on December 17, 2020. Gee.. I guess a slap on their wrist will make them behave NEXT time. How come people are not in jail for this?? I hope this time around politicans will make enough stink that SEC will actually forward indictments to DOJ. [1] https://en.wikipedia.org/wiki/Robinhood_(company)#SEC_Probe_on_Selling_Clients'_Orders https://en.wikipedia.org/wiki/Robinhood_(company)#SEC_Probe_...
rich_sasha 6y ago
It is really interesting reading all this. Someone reuses passwords all over the internet, gets hacked and loses savings of a lifetime, HN says “OMG sooo stupid, you have to have minimal computer literacy in life” etc. People get burnt on literally run-of-the-mill situations with trading and get angry with the world, and vent in a rigged system. Of course there is space for outsiders to challenge the establishment, but assuming you grok finance because you installed Robinhood app is... naive!!!
runako 6y ago
Obviously, margin calls are legitimate. But Robin Hood obviously played an important role in the price direction that led to the margin calls. I honestly don't know how anyone could trust RH as a neutral party after this.
- ivalm 6y ago
  It wasn’t rh alone, it’s also most other discount brokerages.
  - MuffinFlavored 6y ago
    https://www.marketwatch.com/story/gamestop-amc-trading-is-now-being-restricted-at-td-ameritrade-11611769804 https://www.marketwatch.com/story/gamestop-amc-trading-is-no... Not just discount brokerages.
    - vinay427 6y ago
      There's a huge difference between limiting margin trading for GME and closing positions without asking a user or offering an option to put up collateral. Many brokerages did the former, and at least Schwab/Fidelity/TDA all seem to be otherwise up and running so retail investors can still buy and sell GME.
      - ivalm 6y ago
        Closing without recourse during margin call if you are way below maintenance is normal operation. This is the problem with GME, it is extremely volatile and brokerages don't want to be left holding the bag when the bubble bursts and everyone who bought it on margin goes bust.
        MichaelBurge 6y ago
        You can't buy GME on margin at most brokerages, for several weeks at least.
      - 6y ago
woah 6y ago
The idiotic takes on this GME situation are beyond belief. What did people think was going to happen? GME goes to a million and everyone becomes a millionaire?
- Animats 6y ago
  Hey, it worked for Bitcoin. I never expected that. I thought Bitcoin was overpriced at US$20.
  - SamBam 6y ago
    I think the Bitcoin example was exactly what the investors were thinking. A stock that magically always goes up and everybody gets rich. With a real stock, somebody has to be left holding the bag at the end. (Probably with BitCoin as well, but that's a separate discussion.) My understanding was that, with the short squeeze, for a certain number of those stocks the buyer would be the hedge funds. But it seems like at this point there must be way more stocks that the buyers have bought than the hedge funds have shorted, no?
    - Apocryphon 6y ago
      I mean, that's exactly what's been happening with Tesla for months.
      - SamBam 6y ago
        Do you believe that the Tesla buyers are trying to manipulate the market, and have no expectation that the company itself is valuable?
        Apocryphon 6y ago
        Do you believe that GameStop buyers think that the company is as doomed as the short-sellers did? The origin for this whole thing was a DD post that argued that it was a value stock that was over-shorted. And there were institutional investors and analysts like Michael Burry who also saw this happening.
ineedasername 6y ago
we placed it to mitigate the risk on your account Wow, that's pretty awful since liquidating the position may actually put the user at a net loss, which wouldn't avoid risk: It would actually "instantiate" the potential risk of having to sell the stock after falling below the purchase price. Why not give users the opportunity to provide more collateral for their margin?
- eterm 6y ago
  A realised loss is not a risk though. A position where there is margin and could be an even bigger loss is a risk.
- ivalm 6y ago
  They are mitigating the risk to themselves since if the user turns insolvent RH will still be out the margined amount. If they cash the user out, even if user has 100% loss, they save themselves.
- Jommi 6y ago
  Because they are using an app with no fees. This is what fees get you on some other platforms.
  - vinay427 6y ago
    Most major retail brokerages in the US have eliminated fees for stock trades. https://www.stockbrokers.com/compare https://www.stockbrokers.com/compare
    - Jommi 6y ago
      Thats not quite accurate - a lot of the brokerages have only introduced it commission free on certain conditions. For example IBKR still has other fees if you want to use any of their more advanced features.
      - vinay427 6y ago
        Yes, that's fair and it's certainly more accurate, but I assume the OP is comparing the fees of Robinhood to those of other platforms. Robinhood tends to not have many of those advanced features that other brokerages still charge for, as far as I can tell. Is there a specific feature or features you were thinking of?
draw_down 6y ago
The stoppage of buying was pretty bad, but this is just.. I want to say unbelievable but it's quite believable if you know why Robinhood exists and who it exists for.
ineedasername 6y ago
I've seen people say this is all part of a move by big finance to protect entrenched interests. I'm cynical enough to entertain that possibility, but what really would be the leverage/pressure they could put on Robinhood to accede to this? Presumably these moves will hurt Robinhood with their users and possibly introduce legal liability.
bondarchuk 6y ago
Commenters saying that this is understandable and simply how margin trading works might be missing this part of the story: https://blog.robinhood.com/news/2021/1/28/keeping-customers-informed-through-market-volatility https://blog.robinhood.com/news/2021/1/28/keeping-customers-... >We also raised margin requirements for certain securities. Is that how margin trading always works? The broker can just without prior notification increase your collateral requirement and liquidate you instantly?
- imnotlost 6y ago
  Of course, you're literally borrowing money from them to buy securities.
  - bondarchuk 6y ago
    Alright, I didn't know that. It does sound like a bad deal. Imagine if a bank suddenly changed the terms of your mortgage and repossessed the house. You're literally borrowing money from them after all.
    - imnotlost 6y ago
      Apples to oranges. The bank's collateral is its lien on the house. A bank is not interested in foreclosing as long as you keep paying interest + principal every month. In fact, if the value of your house drops 90% it is in your interest to drop the keys off at the bank and say: "You guys can have it". A broker's collateral, when you buy on margin, is the security you bought. As the value drops, collateral goes towards 0. Of course they're going to cover their own a*. It's in the agreement you signed when you opened a margin account. Nobody changed any terms.
      - bondarchuk 6y ago
        Fair enough, thanks for the explanation.
- in3d 6y ago
Railsify 6y ago
This is not a margin call and I'm sure it's in the ToS. They sold your stock so the shorts could start their cover.
Railsify 6y ago
Has anyone confirmed this was a margin account? Let's confirm that before supporting the decision.
myrandomcomment 6y ago
Can anyone confirm this is a margin call? If so it's legal, if not they are going down.
r00tanon 6y ago
There is a regulatory framework, enforced by the SEC, that prevents firms from collaborating on trades in attempts to manipulate stock prices. When an army of retail investors openly collaborate on messaging platforms to manipulate a stock's price, essentially a crowd-sourced "pump and dump," it falls under SEC enforcement. A retail investor can still be prosecuted for violating SEC regulations, such as using insider information, when trading. This is yet another example of unintended consequences with regards to social media and its power to concentrate misinformation and incite mob behavior. I'm sure the vast majority of the people on Robinhood trading up Gamestop (GME) have no idea of the potential legal harm they may be exposed to, not to mention financial harm, even though the T&C's they signed on opening their accounts (especially margin accounts) almost certainly spelled out those risks. Robinhood business model is the canary in the coal mine.
- RhodoGSA 6y ago
  It's interesting because none of what you say is true. Hedge funds definitely collude and not behind closed doors, but also out in the open. Hedge funds announce their picks and go from hedge fund to hedge fund explaining the decisions they made and why they made the stock pick they did. Thousands of analysts in the stock market influence the stock price based on what they see as future investments to be made and are very vocal about it. Wall street bets is no different, reddit just seems to have beat them at their own game.
  - r00tanon 6y ago
    Read this. https://www.investor.gov/introduction-investing/investing-basics/glossary/pump-and-dump-schemes https://www.investor.gov/introduction-investing/investing-ba... If you happen to work in the industry, you've probably had to certify compliance with SEC regulations to stay employed.
- boatsie 6y ago
  How are users on wsb openly discussing GME any different than huge banks with analysts saying “we rate GME as a strong buy”? Also, look at some of these hedge funds and their leverage—-a $3B fund with 10x leverage is going to be able to “manipulate” a stock price with big orders in almost any way they choose, and they do it in secret! Now I don’t personally think GME is worth $300/share, but the people buying it think they will be able to sell it for more, and that is their right. They aren’t being “tricked” with deliberate misinformation, there are indeed a lot of shorts still out there that will eventually need to cover.
lazyholden 6y ago
Hope evrebody leaves Rh after this action
presidentmochi 6y ago
Yes I can confirm. Robinhood sold 3 of my GME options as I was selling some of my other positions in order to exercise 3 GME $115C JAN29 for $150 and 6 ACM $7C for ~$5 for me at 2:13pm on 1/29/21. This was when both stocks were near the lowest point during the day. I had ~$110,000 total portfolio with many positions holding penny stocks strictly so I would be able to unload in the afternoon. I had been exercising AMC $7C all day and 2 of them were not sold automatically as I had sell limits on them. Immediately after, both GME and AMC prices went up. This is criminal on a level I have not seen before. An options contract gives me the right to buy the shares at a certain price and that right was taken away from me. The total difference in the GME contracts from the point at which they sold mine and the average price all day was about $35k less. This. Is. Criminal and it must be shut down completely.

450 points by arkadiyt 6y ago

deleted 6y ago

[deleted]

This is blatant anti-competitive behavior on the part of Robinhood and Citadel. As i say elsewhere - this margin call was FORCED by RH because they blocked users ability to buy shares as Citadel + others were ladder short selling to artificially lower the stock price of GME, forcing the margin call. This is horrific, criminal, and should be prosecuted. Ultimately, they know that their SEC Fine will be less than the $50B+ in losses they face from their irresponsible naked short selling. Did we learn nothing in 2008? Are we just going to continue to allow wall street to get away with fleecing everyone else in America / the world?

hartator 6y ago
> Did we learn nothing in 2008? Yep, that we are going to have to pay their losses.
- miloignis 6y ago
  Something else we learned from 2008 is that the government and taxpayers made money on the bailout because it was paid back with interest, see sources like: https://projects.propublica.org/bailout/ https://projects.propublica.org/bailout/
quotemstr 6y ago
> Are we just going to continue to allow wall street to get away with fleecing everyone else in America / the world? Well yeah. Why would you expect anything else? And if anyone complains about it, the complaints will get scrubbed off the internet. And if you go to private messengers to complain, your session keys will get escrowed because "terrorism" or "misinformation" or something and you'll be banned. Keep in mind that the WallStreetBets Discord server was banned for "hate speech" right in the middle of all the recent drama. Does anyone actually believe that was the real reason? It's because of shenanigans like this that I'm categorically against any sort of control whatsoever over flows of information.
- adventured 6y ago
  It won't be long before the Biden Administration is declaring members from WallStreetBets to be domestic terrorists acting in concert to attack the US financial system (it'll be part of the broader War on Domestic Terrorism program that they've begun). The powers that be in DC and on Wall Street will never allow this kind of action to go unchecked indefinitely. They'll probably make it a crime to organize large groups of individuals to herd buy/short a stock.
  - quotemstr 6y ago
    > They'll probably make it a crime to organize large groups of individuals to herd buy/short a stock. You'd better believe that something will be done to ensure that the rabble can't insult their betters like this ever again.
joe_the_user 6y ago
A stock market is a high stakes gambling system. The smart and the powerful win. You'll never limit winners to just the smart. If you someone did for a period of time, those smart people would become powerful and decide to limit other smart people. But so what if you did allow just smart people win? Most people aren't that smart and you'd wind-up with a fleecing. So making this game fair isn't particularly in the average not-genius-with-nerves-of-steel person's interests. It's more in the average person's interests to have an index-traded-funds go up a reliable amount each year. Fleecing Reddit geeks isn't fleecing everyone in America. Edit: My point is - sure it might be against the rules but this affair is between smart speculators and big speculators. Saying it's crime against everyone is ridiculous.
- twox2 6y ago
  I disagree with you. "It's more in the average person's interests to have an index-traded-funds go up a reliable amount each year." You are saying that people are too dumb to decide what to do with their own money, and that's not your call. The reason this is a crime against everyone is because there's allegedly a "free market", but moments like this show that the emperor has no clothes and that in fact that's not the case.
tmaly 6y ago
https://www.reddit.com/r/occupywallstreet/ https://www.reddit.com/r/occupywallstreet/

jxi 6y ago

If they weren't leveraged, this is basically theft.

jcfrei 6y ago

Most likely margin calls.

paulgb 6y ago
Yep. I’ll repeat what I said in another thread: It’s really kind of ironic. People are knee-jerk blaming RH for closing margin positions because they didn’t fully understand how they work and the risks involved. Simultaneously, the same people are blaming RH for stepping in the way of what very certainly would have turned into a bad trade for a lot of people. I don’t take RH’s side but it’s hard to see a winning play for them, it’s damned-if-you-do-damned-if-you-don’t.
- Jouvence 6y ago
  Nonsense. People are allowed to make bad trades every second of every day without protection from the platform; but now they develop a conscience and save people from themselves? If this is true, RH and other platforms pulling smiliar stunts should be sued out of existence. Might not be a bad idea to significantly increase taxation on derivatives trading too.
  - paulgb 6y ago
    It’s easy to develop a conscience (or the functional equivalent) when you know regulators and press have you in their sights, so yes.
  - mikestew 6y ago
    but now they develop a conscience and save people from themselves? No, RH is saving their own asses from the poor financial decisions of their clients. They don't want to be on the hook when those accounts crater along with GME. If this is true, RH and other platforms pulling smiliar stunts should be sued out of existence. Take it up with the SEC. Oh, wait, the SEC is at least partially responsible for such rules being in place. It's a conspiracy, I tell ya!
- Alupis 6y ago
  This is the same RH that extended Margin accounts to complete amateur investors with practically no vetting before-hand. People that think they'll get rich off pocket-change investments, are not in a position to understand trading on margin, nor it's risks.

akavi 6y ago

Are these users trading on margin?

Animats 6y ago
Yes, that's the big question here. If it's a margin trade, the broker is also a lender and has some discretion. If it's a cash trade, the broker has no risk and should not interfere. Does anyone know? This matters.
koolba 6y ago
100% they're on margin. Otherwise the broker would have no right to make trades on their behalf. In contrast, once you're on margin you give them the right to liquidate any part of your portfolio, at any time, to cover your margin balance. What they can't do is liquidate beyond the margin balance. Once they've covered the balance they would have to stop closing out your positions.

geek_at 6y ago

Wow if true, this is a huge violation of user trust

arbitrage 6y ago
from robinhood? are you kidding, or what?
- dang 6y ago
  Please stick to posting substantive comments.

umvi 6y ago

> due to the unreasonable risk involved in brokering your position, we have closed your X shares of GME for an average price of Y What in the world?? "In order to protect you from yourself, we have taken away your free will. Thanks!"

arbitrage 6y ago
you are using their brokerage. their rules. free will has nothing to do with it.
- leesalminen 6y ago
  It's not possible for someone like me to purchase a publicly traded security without going through a broker. So what you're saying is that market participants can only participate if they do what the people making the market want?
- ehsankia 6y ago
  Well they now have 1 star on both app stores and can say goodbye to their upcoming IPO. While it is true their rules may have specified such a situation (I'm not a lawyer and not sure how legal this is), they are still a platform that rely on user trust, and they just destroyed any they had. You can't really call yourself "robin hood" when you bow over to the first big guy that shows up.
avree 6y ago
Yes, that is how it works when you buy stock on margin and do not have the cash to cover. When the price dips, the risk increases to the broker, and so they may liquidate your position to cover.
- umvi 6y ago
  I see. I think that's a critical piece of context missing in that tweet: "Note: these particular shares were bought on margin. Buying on margin is borrowing money from a broker to purchase stock" I thought RH was forcibly selling a customer's stocks that the customer had previously purchased with their own money.

eterm 6y ago

Browing the top of reddit right now is really reminiscent of /r/The_Donald, particularly the shift from a bunch of 'ironic' jokers to conspiracy theories and shouty chest beating and calls for upvotes. I'd treat anything like this with a huge pinch of salt.

dageshi 6y ago
In the words of Agent Kay from MiB "A person is smart. People are dumb, panicky dangerous animals and you know it."
czechdeveloper 6y ago
Is it conspiracy theory, when it's true?
- golemiprague 6y ago
  Yes, something can be true but not proven. I for example believe that the elections were rigged and that Trump actually won. It could be true but I got not proof so it stays in the realm of theory.
greenshackle2 6y ago
Not just Reddit. It's here too. It's wild to see people being whipped into a frenzy in real time. I'm following the discussions a bit, lots of comments by people spreading conspiracy theories, comments asking for evidence are just downvoted, or met by the conspiracy theorist's favorite, "do your research", comments spreading disinformation like "citadel owns robinhood" with a tweet as the only source, people who have no idea how market functions talking about "naked shorting", etc. The disinformation spreads faster than it takes to rebut it.
- deleted 6y ago
  [deleted]
- Railsify 6y ago
  Someone not wanting to explain what is in 50 news articles to new commenters does not make them a conspiracy theorist, why should they do your google searches for you?

captainarab 6y ago

this is despicable.

stephanerangaya 6y ago

I saw this on Twitter and couldn't find any sources to confirm that the e-mail screenshot is real. Take this with a pinch of salt, it might be fake.

ttt0 6y ago
Blue checkmarks seem to confirm this: https://twitter.com/dreamwisp/status/1354865709998723072 https://twitter.com/dreamwisp/status/1354865709998723072 edit: My bad, it's "just" cancelling their orders, not selling anything on their behalf.
- aqme28 6y ago
  A canceled buy order is very different from an automatic sale. Buy orders can be canceled all the time for various reasons, though in this case it's likely Robinhood's well-documented purchase restrictions. Also that user does not have a blue check.
  - ttt0 6y ago
    Yes, I noticed it and already edited my comment, my bad. The person below is a blue checkmark.

RGamma 6y ago

Is this the prelude to https://www.politico.com/magazine/story/2014/06/the-pitchforks-are-coming-for-us-plutocrats-108014 https://www.politico.com/magazine/story/2014/06/the-pitchfor...?

avree 6y ago

He was margin called. This is literally how margin works, has nothing to do with GME or the Robinhood furor.

hahla 6y ago
That was my thought process as well, but no where in the app message or email does it say the position was closed out due to a margin call.
- short_sells_poo 6y ago
  If you have a margin account, the broker calculates a risk based margin and can close any position they wish if they deem it a risk. They don't have to give you any justification. With increased buying power comes increased risk. In some sense this was basically inevitable. Robinhood allowed (perhaps even encouraged) a huge mass of clueless investors to flood into the market. As long as the going was good, nobody complained, but as soon as things go south, people have started to learn expensive lessons. This is not the first time this has happened. Almost every single market stress for the past 20 years has caused grief to retail in some way as they were caught out on something they didn't know about. One clear example that comes to mind is when the Swiss national bank has removed the currency peg and a whole bunch of FX retail has made the expensive discovery that stop limit orders are not guaranteed to execute...
  - dingaling 6y ago
    Maybe it's a good time to stop calling them investors and instead call them speculators. They're not investing in anything, their money doesn't contribute to any form of progress.
    - llampx 6y ago
      Welcome to the stock market
    - elihu 6y ago
      I assume Gamestop the company (and all the people they employ) are better off than they were a week ago. Maybe there won't be many lasting positive effects from having their stock briefly worth a lot more than it rationally should, but on the other hand you could make a reasonable case that they have been significantly harmed by short sellers, and that if a bunch of hedge funds lost their shirts because of their short positions they'll be more careful about shorting Gamestop or any other company in the future. Maybe that's a good thing.

deleted 6y ago

[deleted]

quotemstr 6y ago

Robinhood's behavior here is wicked and wrong. Yes, Robinhood's EULA technically allows them to do this wicked thing. The same EULA says that Robinhood can't be sued over it or anything else. It's about time we talk about how it's not in the public's interest to allow companies to put arbitrarily user-hostile terms in their user agreements.

freeone3000 6y ago
EULA allows them to close out a margin call, but not sell shares held for a client. Selling held shares without a standing order from the client is illegal, no matter what an EULA says.
jrochkind1 6y ago
Are you looking at a particular clause in the EULA? Where do we find the EULA?
SpicyLemonZest 6y ago
The challenge in this case is that many people want this. They see it as only fair that the little guy should be allowed to invest on the same (sometimes user-hostile) terms as big institutions do. If you pass a new regulation saying that margin calls feel scummy so nobody can offer small investors a margin account, is that really a win for small investors?

imperio59 6y ago

It is in their T&Cs that they can do this if your account is trading on margin. If not, then it feels like there's a potential for a class action lawsuit.

captainarab 6y ago

For anyone saying, "Most likely trading on margin" Remember: This morning Robinhood conspired with Citadel to halt trading amid a short ladder sell to drive the price lower, allowing shorts to cover their losses with no competition. This is blatant market manipulation and anti competitive behavior, and must be stopped. Why does everyone insist on protecting billionaires who insist on playing the game with a different set of rules than the rest of us?

jrochkind1 6y ago
OK, but they are almost certainly also trading on margin right? You trade with robinhood's money, then they can decide not to lend it to you anymore for nearly any reason they want. ¯\_(ツ)_/¯
- captainarab 6y ago
  Sure, no argument from me on here. You have to admit, though - that is disingenuous. Those plays were profitable, no need to call them (unless there has been irresponsible behavior on the behalf of the broker)
  - short_sells_poo 6y ago
    That is entirely up to the broker. They make no guarantees to you that they'll underwrite your risk taking with no limits. If you don't want this to happen, go to a reputable broker and make sure you are not trading on margin. This is not rocket science, but does require a basic level of understanding.
    - captainarab 6y ago
      I agree that this is the technically correct definition of how margin is typically utilized, and that investors should be prepared for this in the case of high volatility. The fact does remain, though, that the way the data is presenting itself seems to indicate that there was disingenuous behavior on the behalf of market makers and a number of hedge funds. To be seen, I guess.

robot1 6y ago

This is ONLY if you enable margin trading via Robinhood Gold - they increased their margin requirements recently on GME and this will not happen to you if you are trading on cash.

sjs382 6y ago
It's not just Robinhood Gold. All accounts are "Robinhood Instant" by default. You need to permanently opt-out of Robinhood Instant (or wait for deposits/trades to settle) to opt-out. Edit: to add a link. This info is fairly well buried: https://robinhood.com/us/en/support/articles/robinhood-accounts/ https://robinhood.com/us/en/support/articles/robinhood-accou...
- avree 6y ago
  Yes, but "Robinhood Instant" is limited to a subset of the funds you are depositing. It is set up as a margin account to allow them to trade on your behalf before the money hits your Robinhood account. But the money will be hitting, so you will have cash to cover the trade. It's not the same as actual margin trading (where, for example, in this case, the user did not have cash to cover and so his position was liquidated by the broker.)

plasma 6y ago

This feels like RH is going to go under if they don’t make this move? Are they holding a lot of risk by not doing this or something? And what repercussions would they face, surely they’ve flagged that risk and are doing it anyway.

lainga 6y ago
Some people have speculated (big sign reading SPECULATION SPECULATION NO PROOF above this post) it might make sense if RH was trading for itself and taking the other side of its client's trades, like Goldman was accused of doing in '08. In which case they are in big hot water. ed. yes, on the chance that this wasn't just a margin call
markdown 6y ago
> And what repercussions would they face Nothing worth worrying about. Every single case in the financial sector over the past two decades has resulted in fines that are a fraction of the profits. I mean, you had banks laundering money for cartels, Malasians were looted, etc etc... every single time they fine the culprits a tiny fraction of their profits. The US has made criminal activity profitable, even if you get caught. So Citadel and RH probably just made the smart move. Screw the rules, because the punishment for breaking them will be more than worth it.
- captainarab 6y ago
  100% agree. Pretty sad to see most of HN willfully ignoring this fact and jumping to the defense of Hedge Funds and the billionaire class.
  - deleted 6y ago
    [deleted]
  - wyre 6y ago
    Reading HN this whole month has been disheartening after reading so many comments defending the insurrection and Parler.

deleted 6y ago

[deleted]

dang 6y ago

For pointers to other vertices of this story graph, see https://news.ycombinator.com/item?id=25933543 https://news.ycombinator.com/item?id=25933543.

steventmhess 6y ago

13G recently filed shows larger holders liquidating -- couple that to the crap financials in GME, then you can see the writing on the wall. However, insiders will be roasted by the DOJ. Liquidate, restructure, hose commons. It's GME -- it's a dead company trapped in yesteryear.

cj 6y ago

Sounds like a margin call [0] which is absolutely “business as usual” and not something to be upset over. Some of the margin calls may have been triggered earlier than investors may have anticipated given that (I believe) Robinhood recently adjusted their margin requirements for GME. (It’s also normal for brokers to raise margin requirements on particularly risky stocks, which GME clearly is at the moment) [0] https://www.investopedia.com/terms/m/margincall.asp https://www.investopedia.com/terms/m/margincall.asp

DevKoala 6y ago

This story has so many twists. I just bought some today to raise the middle finger after I noticed politicians batting for the hedge funds. I was confident I would lose it all, but now I am actually thinking this will go to court and I could make some money.

zby 6y ago

The only not silly response to that silly situation would be to GME to quickly sell enough stock to stabilize the price at some reasonably high valuation and them maybe use money from that to do some stock buybacks later if it falls to an unreasonable low level.

snorrah 6y ago

How bad for RH is this exactly, if some people affected weren’t margin trading? https://twitter.com/themaxburns/status/1354874931092348933 https://twitter.com/themaxburns/status/1354874931092348933

ehsankia 6y ago
The automatic sell aside, isn't just restricting trades on the given stocks just bad enough already?

deleted 6y ago

[deleted]

spir 6y ago

Robinhood's behavior shows why blockchain-based finance, with its censorship resistance and permissionless participation, is the future. It's already the case that many of ethereum's DeFi apps can't betray users. Unlike a centralized financial institution, a DeFi app's smart contract code can be shown to be a public API that treats all users fairly and correctly, with no admin keys or back doors. Smart contracts can fail for other reasons, such as bugs or bad economics. But, what they can't do is call up their friends and ask them for some favoritism. In DeFi, we say that smart contracts that can't betray users are "credibly neutral". https://nakamoto.com/credible-neutrality/ https://nakamoto.com/credible-neutrality/ (by Vitalik Buterin) As an example, one important DeFi app that is credibly neutral is Uniswap, a decentralized trading exchange that did $700M in volume yesterday. The main Uniswap app is here https://app.uniswap.org/ https://app.uniswap.org/. Financial stats for Uniswap are available here https://info.uniswap.org/ https://info.uniswap.org/. Yesterday, Uniswap made $2M in fees for its liquidity partners (anyone can provide liquidity). Fee data can been seen here https://cryptofees.info/ https://cryptofees.info/. Many tokens on Uniswap are pump-and-dumps or projects that won't succeed. Anyone can list any token. Yet, users seem to love the control and reliability given to them by Uniswap and other DeFi apps.

mikestew 6y ago

Yeah, brokerages will do that if the stock takes a big drop like it did today. Oh, did you not read that part of your margin agreement? According to thread, some are just now getting to that part. Those same folks shouldn't have been trading GME on margin. If it's any consolation, I've had Fidelity, IB, et. al., do the exact same thing when a trade turned sour. Difference is, I didn't run to Reddit to display my ignorance to the world.

Tenoke 6y ago
Are you sure you didn't just have a margin call up to the margin maintenance rather than get everything on margin liquidated immediately like here?
- mikestew 6y ago
  You know, you might be right. Last time I had a margin call was a long time ago. Then again, I don't recall ever trading a stock on margin that swings 100% either direction in one day. Speaking of margin calls, a brokerage usually gives you the courtesy call saying, "either you liquidate (or give us more money to cover), or we'll do it for you", but on GME I could see skipping that call given the volatility.
simonsaidit 6y ago
The difference here is they prevented people from starting new positions while still allowing closing them .. effectivly being the cause of the drop.
- stickfigure 6y ago
  > cause of the drop Not sure I understand this perspective. GME was a balloon floating around in a needle shop.
  - gruez 6y ago
    Yeah, but the wishful thinking in the other threads I've seen was that by the time it popped, all (or most) of the holders would be the short sellers, not the wsb people who pumped it up. In that sense it would be "fine".

firebaze 6y ago

Smelled like scam, is a scam. So glad I didn't fall into the robinhood trap, I was really close to. Edit: yes this comment isn't related to the linked article.

mikestew 6y ago
Fidelity and every other brokerage of which I have knowledge would let you do the same thing (get into a bad trade, and then liquidate your position when you exceed margin limits). This isn't a "Robinhood" thing, this is an "ignorant gamblers who shouldn't be allowed anywhere near a margin account" thing.
- dbnoch 6y ago
  except for the line where they prevented trading on said stock.
  - mikestew 6y ago
    I believe you mean they prevented buying. Obviously the positions could be liquidated (sold).
- Animats 6y ago
  Yes. Understand that if you buy on margin, and the stock goes down too much, you owe the broker money. The broker can ask you to deposit more money to cover a margin call, or sell out your position. What's unusual about RobinHood is that they make buying on margin very easy. It's a feature of a "Robinhood Gold" account.[1] "You can try Gold for free for the first 30 days. Sign up anytime from your account settings." This gets people trading on margin who probably shouldn't be trading on margin. Many of them are going to be busted down to zero. Those prices aren't going to stay up once the fad is over. Here's RobinHood's margin agreement.[2] [1] https://robinhood.com/us/en/support/articles/gold-overview/ https://robinhood.com/us/en/support/articles/gold-overview/ [2] https://cdn.robinhood.com/assets/robinhood/legal/RHS%20Customer%20Margin%20and%20Short%20Account%20Agreement.pdf https://cdn.robinhood.com/assets/robinhood/legal/RHS%20Custo...
- 6y ago

thebean11 6y ago

This is probably legit, unlike delisting it. You are taking a loan from them with the understanding that they can (in some circumstances) liquidate your investment to lower their own risk. This absolutely seems like one of those circumstances.

AnHonestComment 6y ago
A margin call on a stock you halted trading in smells like fraud. It’s like the bank banning selling your home then repossessing it when the value falls. Crooked entirely.
- Lewton 6y ago
  I agree that it’s crooked to block buying of gme stock, but the resulting margin calls are well within the risks you agree to once you start trading with borrowed money
- thebean11 6y ago
  > It’s like the bank banning selling your home then repossessing it when the value falls. Apples and oranges. If you bought a house on margin, the way a brokerage defines margin, they would absolutely be allowed to do that. Margin and mortgage are fundamentally different types of loans. I agree that halting buys was absolutely wrong. Definitely see where you're coming from, if you look at the two actions together..it doesn't paint a very pretty picture.
  - cwkoss 6y ago
    Isn't buying a house on margin... basically just a normal mortgage?
    - Animats 6y ago
      You don't get a margin call if your house or car is underwater. You can just keep making the payments until you own it.

weird-eye-issue 6y ago

It is called a margin call. Nothing specific to Robinhood or to GME.

xibalba 6y ago

Interesting counter point to the "elites-pulling-levers-to-protect-hedgies" conspiracy theory: https://twitter.com/arampell/status/1354859474658312196?ref_src=twsrc%5Etfw https://twitter.com/arampell/status/1354859474658312196?ref_...

ummonk 6y ago
That's not a counter point. The IB Chairman explicitly said they put in the restrictions to protect market makers rather than their customers: https://www.youtube.com/watch?v=7RH4XKP55fM https://www.youtube.com/watch?v=7RH4XKP55fM
- xibalba 6y ago
  So, point blank, you believe these restrictions were implemented to protect hedge funds and financial elites? Do you not believe there could be simpler explanations to brokers halting buying of the meme-stonk tickers that are 1) explained by their own financial incentives and risks, and 2) not by a shadowy conspiracy of financial elites pulling levers behind the scenes?
  - platz 6y ago
    The reason he gave in that video was because of margin ("the cust not being able to pay"), which doesn't explain not being able to buy with cash.
- acover 6y ago
  Forgive me I don't know a lot about this. I think he is talking about protecting intermediaries like the clearing houses and the exchanges themselves. The exchanges only work if counter party risk doesn't exist. To solve this, the exchanges back stop every trade and act as one common counter party [0]. He is concerned that there is a $15 billion loss out there due to options on GME. This could wipe out the intermediates guaranteeing the trades. Further that $15 billion can grow arbitrarily as GME is in a short squeeze and disconnected from reality. [0] - https://www.cmegroup.com/clearing/risk-management.html https://www.cmegroup.com/clearing/risk-management.html

joering2 6y ago

From [1]: On September 2, 2020, the Wall Street Journal reported that Robinhood was under SEC investigation for failing to fully disclose selling clients' orders to high-speed trading firms, with a potential $10M+ fine.[6] Robinhood paid $65M to settle the SEC investigation on December 17, 2020. Gee.. I guess a slap on their wrist will make them behave NEXT time. How come people are not in jail for this?? I hope this time around politicans will make enough stink that SEC will actually forward indictments to DOJ. [1] https://en.wikipedia.org/wiki/Robinhood_(company)#SEC_Probe_on_Selling_Clients'_Orders https://en.wikipedia.org/wiki/Robinhood_(company)#SEC_Probe_...

rich_sasha 6y ago

It is really interesting reading all this. Someone reuses passwords all over the internet, gets hacked and loses savings of a lifetime, HN says “OMG sooo stupid, you have to have minimal computer literacy in life” etc. People get burnt on literally run-of-the-mill situations with trading and get angry with the world, and vent in a rigged system. Of course there is space for outsiders to challenge the establishment, but assuming you grok finance because you installed Robinhood app is... naive!!!

runako 6y ago

Obviously, margin calls are legitimate. But Robin Hood obviously played an important role in the price direction that led to the margin calls. I honestly don't know how anyone could trust RH as a neutral party after this.

ivalm 6y ago
It wasn’t rh alone, it’s also most other discount brokerages.
- MuffinFlavored 6y ago
  https://www.marketwatch.com/story/gamestop-amc-trading-is-now-being-restricted-at-td-ameritrade-11611769804 https://www.marketwatch.com/story/gamestop-amc-trading-is-no... Not just discount brokerages.
  - vinay427 6y ago
    There's a huge difference between limiting margin trading for GME and closing positions without asking a user or offering an option to put up collateral. Many brokerages did the former, and at least Schwab/Fidelity/TDA all seem to be otherwise up and running so retail investors can still buy and sell GME.
    - ivalm 6y ago
      Closing without recourse during margin call if you are way below maintenance is normal operation. This is the problem with GME, it is extremely volatile and brokerages don't want to be left holding the bag when the bubble bursts and everyone who bought it on margin goes bust.
      - MichaelBurge 6y ago
        You can't buy GME on margin at most brokerages, for several weeks at least.
    - 6y ago

woah 6y ago

The idiotic takes on this GME situation are beyond belief. What did people think was going to happen? GME goes to a million and everyone becomes a millionaire?

Animats 6y ago
Hey, it worked for Bitcoin. I never expected that. I thought Bitcoin was overpriced at US$20.
- SamBam 6y ago
  I think the Bitcoin example was exactly what the investors were thinking. A stock that magically always goes up and everybody gets rich. With a real stock, somebody has to be left holding the bag at the end. (Probably with BitCoin as well, but that's a separate discussion.) My understanding was that, with the short squeeze, for a certain number of those stocks the buyer would be the hedge funds. But it seems like at this point there must be way more stocks that the buyers have bought than the hedge funds have shorted, no?
  - Apocryphon 6y ago
    I mean, that's exactly what's been happening with Tesla for months.
    - SamBam 6y ago
      Do you believe that the Tesla buyers are trying to manipulate the market, and have no expectation that the company itself is valuable?
      - Apocryphon 6y ago
        Do you believe that GameStop buyers think that the company is as doomed as the short-sellers did? The origin for this whole thing was a DD post that argued that it was a value stock that was over-shorted. And there were institutional investors and analysts like Michael Burry who also saw this happening.

ineedasername 6y ago

we placed it to mitigate the risk on your account Wow, that's pretty awful since liquidating the position may actually put the user at a net loss, which wouldn't avoid risk: It would actually "instantiate" the potential risk of having to sell the stock after falling below the purchase price. Why not give users the opportunity to provide more collateral for their margin?

eterm 6y ago
A realised loss is not a risk though. A position where there is margin and could be an even bigger loss is a risk.
ivalm 6y ago
They are mitigating the risk to themselves since if the user turns insolvent RH will still be out the margined amount. If they cash the user out, even if user has 100% loss, they save themselves.
Jommi 6y ago
Because they are using an app with no fees. This is what fees get you on some other platforms.
- vinay427 6y ago
  Most major retail brokerages in the US have eliminated fees for stock trades. https://www.stockbrokers.com/compare https://www.stockbrokers.com/compare
  - Jommi 6y ago
    Thats not quite accurate - a lot of the brokerages have only introduced it commission free on certain conditions. For example IBKR still has other fees if you want to use any of their more advanced features.
    - vinay427 6y ago
      Yes, that's fair and it's certainly more accurate, but I assume the OP is comparing the fees of Robinhood to those of other platforms. Robinhood tends to not have many of those advanced features that other brokerages still charge for, as far as I can tell. Is there a specific feature or features you were thinking of?

draw_down 6y ago

The stoppage of buying was pretty bad, but this is just.. I want to say unbelievable but it's quite believable if you know why Robinhood exists and who it exists for.

ineedasername 6y ago

I've seen people say this is all part of a move by big finance to protect entrenched interests. I'm cynical enough to entertain that possibility, but what really would be the leverage/pressure they could put on Robinhood to accede to this? Presumably these moves will hurt Robinhood with their users and possibly introduce legal liability.

bondarchuk 6y ago

Commenters saying that this is understandable and simply how margin trading works might be missing this part of the story: https://blog.robinhood.com/news/2021/1/28/keeping-customers-informed-through-market-volatility https://blog.robinhood.com/news/2021/1/28/keeping-customers-... >We also raised margin requirements for certain securities. Is that how margin trading always works? The broker can just without prior notification increase your collateral requirement and liquidate you instantly?

imnotlost 6y ago
Of course, you're literally borrowing money from them to buy securities.
- bondarchuk 6y ago
  Alright, I didn't know that. It does sound like a bad deal. Imagine if a bank suddenly changed the terms of your mortgage and repossessed the house. You're literally borrowing money from them after all.
  - imnotlost 6y ago
    Apples to oranges. The bank's collateral is its lien on the house. A bank is not interested in foreclosing as long as you keep paying interest + principal every month. In fact, if the value of your house drops 90% it is in your interest to drop the keys off at the bank and say: "You guys can have it". A broker's collateral, when you buy on margin, is the security you bought. As the value drops, collateral goes towards 0. Of course they're going to cover their own a*. It's in the agreement you signed when you opened a margin account. Nobody changed any terms.
    - bondarchuk 6y ago
      Fair enough, thanks for the explanation.
in3d 6y ago

Railsify 6y ago

This is not a margin call and I'm sure it's in the ToS. They sold your stock so the shorts could start their cover.

Railsify 6y ago

Has anyone confirmed this was a margin account? Let's confirm that before supporting the decision.

myrandomcomment 6y ago

Can anyone confirm this is a margin call? If so it's legal, if not they are going down.

r00tanon 6y ago

There is a regulatory framework, enforced by the SEC, that prevents firms from collaborating on trades in attempts to manipulate stock prices. When an army of retail investors openly collaborate on messaging platforms to manipulate a stock's price, essentially a crowd-sourced "pump and dump," it falls under SEC enforcement. A retail investor can still be prosecuted for violating SEC regulations, such as using insider information, when trading. This is yet another example of unintended consequences with regards to social media and its power to concentrate misinformation and incite mob behavior. I'm sure the vast majority of the people on Robinhood trading up Gamestop (GME) have no idea of the potential legal harm they may be exposed to, not to mention financial harm, even though the T&C's they signed on opening their accounts (especially margin accounts) almost certainly spelled out those risks. Robinhood business model is the canary in the coal mine.

RhodoGSA 6y ago
It's interesting because none of what you say is true. Hedge funds definitely collude and not behind closed doors, but also out in the open. Hedge funds announce their picks and go from hedge fund to hedge fund explaining the decisions they made and why they made the stock pick they did. Thousands of analysts in the stock market influence the stock price based on what they see as future investments to be made and are very vocal about it. Wall street bets is no different, reddit just seems to have beat them at their own game.
- r00tanon 6y ago
  Read this. https://www.investor.gov/introduction-investing/investing-basics/glossary/pump-and-dump-schemes https://www.investor.gov/introduction-investing/investing-ba... If you happen to work in the industry, you've probably had to certify compliance with SEC regulations to stay employed.
boatsie 6y ago
How are users on wsb openly discussing GME any different than huge banks with analysts saying “we rate GME as a strong buy”? Also, look at some of these hedge funds and their leverage—-a $3B fund with 10x leverage is going to be able to “manipulate” a stock price with big orders in almost any way they choose, and they do it in secret! Now I don’t personally think GME is worth $300/share, but the people buying it think they will be able to sell it for more, and that is their right. They aren’t being “tricked” with deliberate misinformation, there are indeed a lot of shorts still out there that will eventually need to cover.

lazyholden 6y ago

Hope evrebody leaves Rh after this action

presidentmochi 6y ago

Yes I can confirm. Robinhood sold 3 of my GME options as I was selling some of my other positions in order to exercise 3 GME $115C JAN29 for $150 and 6 ACM $7C for ~$5 for me at 2:13pm on 1/29/21. This was when both stocks were near the lowest point during the day. I had ~$110,000 total portfolio with many positions holding penny stocks strictly so I would be able to unload in the afternoon. I had been exercising AMC $7C all day and 2 of them were not sold automatically as I had sell limits on them. Immediately after, both GME and AMC prices went up. This is criminal on a level I have not seen before. An options contract gives me the right to buy the shares at a certain price and that right was taken away from me. The total difference in the GME contracts from the point at which they sold mine and the average price all day was about $35k less. This. Is. Criminal and it must be shut down completely.