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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
by 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 agoOf course, you're literally borrowing money from them to buy securities.
- bondarchuk 6y agoAlright, 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 agoApples 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 agoFair enough, thanks for the explanation.
- in3d 6y agoYes. Happens with regularity.