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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

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?
mleonhard 6y ago
The users have the option to buy the stock with their own money at any time. RobinHood loaned that money and decided that the risk of user default was too great, so they forced sale. I expect they did this only for the riskiest users who bought a lot of Gamestop stock on margin.
akra 6y ago
Risk isn't money lost, its all about uncertainity of outcomes from a finance perspective. A realized loss isn't risky; since they've changed an uncertainty into a certainty (i.e. you will lose this much).
weird-eye-issue 6y ago
First of all, it does reduce risk because it avoids further downside. Just because a stock can come back up doesn't mean it didn't lose real value even before realizing the loss. Second, this is not about the individual's risk of losing money. This is about Robinhood losing money because they lent him money. And about why they didn't give him a chance to provide further collateral is simply because there wasn't enough time. I watched the stock drop from over $400 to $125 in just over an hour. Not sure what you could expect Robinhood to do in that situation.

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?

mleonhard 6y ago

The users have the option to buy the stock with their own money at any time. RobinHood loaned that money and decided that the risk of user default was too great, so they forced sale. I expect they did this only for the riskiest users who bought a lot of Gamestop stock on margin.

akra 6y ago

Risk isn't money lost, its all about uncertainity of outcomes from a finance perspective. A realized loss isn't risky; since they've changed an uncertainty into a certainty (i.e. you will lose this much).

weird-eye-issue 6y ago

First of all, it does reduce risk because it avoids further downside. Just because a stock can come back up doesn't mean it didn't lose real value even before realizing the loss. Second, this is not about the individual's risk of losing money. This is about Robinhood losing money because they lent him money. And about why they didn't give him a chance to provide further collateral is simply because there wasn't enough time. I watched the stock drop from over $400 to $125 in just over an hour. Not sure what you could expect Robinhood to do in that situation.