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>People are knee-jerk blaming RH for closing margin positions because they didn’t fully understand how they work People are typically given a choice to sell ot

by Tenoke 6y ago

>People are knee-jerk blaming RH for closing margin positions because they didn’t fully understand how they work People are typically given a choice to sell other assets, deposit more or close in these situations rather than getting their stock sold at the brief lowest possible price driven by the very broker closing the position. Also, typically it's only a portion that gets liquidated rather than everything on margin.

bdonlan 6y ago
The lowest possible price is also the point where the value of your portfolio is lowest and the margin call is most severe. It is completely normal for brokers to immediately close positions when you are highly leveraged and the market is moving quickly on a direction which might leave your portfolio at a negative value - they don't want to be left holding the bag if you take too long to respond. Generally your broker will only give you time to correct things when volatility is low enough that things won't change over the next few hours.
- Tenoke 6y ago
  Fair enough. If it was all margin calls from accounts bellow the limit that's acceptable but if they liquidated everything on margin that would still be pretty questionable.
  - betterunix2 6y ago
    Not that questionable when volatility is extreme. The risk that the price is dramatically lower when the market opens tomorrow may be too large, and they would rather not be stuck with their customers' debt when that happens.
deleted 6y ago
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paulgb 6y ago
People typically get a meal on an international flight, but not if they fly RyanAir. If you run a super discount brokerage platform, you don’t have the luxury of reaching out to all your customers to find out what course of action they want to take. I’m not sure if RH violated their own terms here, if they did then sure, they deserve a lawsuit. I suspect they didn’t, and this is just a case of people being in over their head.
beezle 6y ago
That is not always the case, certainly not in modern times. If you have a full service broker and there appears to be sufficient time to contact you, they may do so and give you a chance to pick what to close out. However, very few people use full service brokers. Everything is now automated. The best you can hope for is that the broker provides a mechanism prior to the need to close any position to signify which should be the last one hit to pay the margin loan. As a specific example, Interactive allows their clients to pre-select one holding as the absolute last one to close. (edit spelling)

by Tenoke 6y ago

bdonlan 6y ago

The lowest possible price is also the point where the value of your portfolio is lowest and the margin call is most severe. It is completely normal for brokers to immediately close positions when you are highly leveraged and the market is moving quickly on a direction which might leave your portfolio at a negative value - they don't want to be left holding the bag if you take too long to respond. Generally your broker will only give you time to correct things when volatility is low enough that things won't change over the next few hours.

Tenoke 6y ago
Fair enough. If it was all margin calls from accounts bellow the limit that's acceptable but if they liquidated everything on margin that would still be pretty questionable.
- betterunix2 6y ago
  Not that questionable when volatility is extreme. The risk that the price is dramatically lower when the market opens tomorrow may be too large, and they would rather not be stuck with their customers' debt when that happens.

deleted 6y ago

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paulgb 6y ago

People typically get a meal on an international flight, but not if they fly RyanAir. If you run a super discount brokerage platform, you don’t have the luxury of reaching out to all your customers to find out what course of action they want to take. I’m not sure if RH violated their own terms here, if they did then sure, they deserve a lawsuit. I suspect they didn’t, and this is just a case of people being in over their head.

beezle 6y ago

That is not always the case, certainly not in modern times. If you have a full service broker and there appears to be sufficient time to contact you, they may do so and give you a chance to pick what to close out. However, very few people use full service brokers. Everything is now automated. The best you can hope for is that the broker provides a mechanism prior to the need to close any position to signify which should be the last one hit to pay the margin loan. As a specific example, Interactive allows their clients to pre-select one holding as the absolute last one to close. (edit spelling)