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

by avree 6y ago

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.
okprod 6y ago
The screenshots I've seen aren't due to margin calls, also not end of day yet
- jsjohnst 6y ago
  There is no “end of day” only requirement on margin calls. A brokerage firm could margin call you 2min after the market opened, as an example. The trigger is when your account is out of balance with the established risks the brokerage is willing to extend to you, which they can change the criteria at will. More details on margin calls here: https://www.thebalance.com/what-is-margin-call-358106 https://www.thebalance.com/what-is-margin-call-358106
Tenoke 6y ago
It seems like this was his whole position on margin, rather than bringing them back to the margin maintenance which isn't normal.
sauwan 6y ago
Maybe. Would he have been margin called without their earlier action?
- mkipper 6y ago
  Maybe not. But that doesn't make this news. RH is getting sued for market manipulation. This is the inevitable result from that. RH may very well be guilty in all of this, but not for these margin calls.
cwkoss 6y ago
The fact that this margin call happened at the bottom, but this user likely could not have closed their position themselves 15 minutes earlier at a better price, seems like it should be illegal if it is not already.
- FabHK 6y ago
  If you're long on margin, the position will of course be closed when the stock price drops (and the value of the position (= stock price * number of stocks minus margin loan) approaches zero), not when it rises. And it was impossible on RH and other brokers to buy more shares, selling (liquidating a long position) was always possible, AFAIK.

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

by avree 6y ago

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

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.

okprod 6y ago

The screenshots I've seen aren't due to margin calls, also not end of day yet

jsjohnst 6y ago
There is no “end of day” only requirement on margin calls. A brokerage firm could margin call you 2min after the market opened, as an example. The trigger is when your account is out of balance with the established risks the brokerage is willing to extend to you, which they can change the criteria at will. More details on margin calls here: https://www.thebalance.com/what-is-margin-call-358106 https://www.thebalance.com/what-is-margin-call-358106

Tenoke 6y ago

It seems like this was his whole position on margin, rather than bringing them back to the margin maintenance which isn't normal.

sauwan 6y ago

Maybe. Would he have been margin called without their earlier action?

mkipper 6y ago
Maybe not. But that doesn't make this news. RH is getting sued for market manipulation. This is the inevitable result from that. RH may very well be guilty in all of this, but not for these margin calls.

cwkoss 6y ago

The fact that this margin call happened at the bottom, but this user likely could not have closed their position themselves 15 minutes earlier at a better price, seems like it should be illegal if it is not already.

FabHK 6y ago
If you're long on margin, the position will of course be closed when the stock price drops (and the value of the position (= stock price * number of stocks minus margin loan) approaches zero), not when it rises. And it was impossible on RH and other brokers to buy more shares, selling (liquidating a long position) was always possible, AFAIK.