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An Update on Market Volatility
- EwanToo 6y agoAs the post says, "We stand in support of our customers". People who buy and sell stock on Robinhood don't pay them anything, it's the market makers that pay them. In this case, the adage is true "You're not the customer, you're the product"...
- Miner49er 6y agoThey do make money off of some people who buy and sell stocks in the form of their Robinhood Gold subscription ($5 a month) and margin (2.5% interest).
- Ozzie_osman 6y agoThis is extremely suspect. If you take my money, and give me a share, in theory I should be the only one exposed to a loss (assuming no leverage). Unless you're doing something else with my money or my shares. I'm sure many people are buying on leverage, but that doesn't explain why they can't just limit margin buying vs preventing any purchase of the stock.
- dcolkitt 6y agoShares in the US take 3 days to settle. Technically when you buy a share, and it shows up in your account you don’t have actually own it. The broker is only showing you what you expect to receive. Same for selling a share. Cash from the proceeds will show up in your account, but the broker hasn’t actually received that money from the settlement. You can trade with that cash, only because the broker is extending you credit. This is why you can’t trade more than once every three days in an IRA. Tax exempt accounts can’t be used as collateral for loans.
- esoterica 6y agoThat's the abstraction that gets presented to the end-user but it's not how it works under the hood. When trades occur money doesn't change hands immediately, settlement only occurs two days later. The clearing houses require the brokerages to post collateral to ensure that they have the money required to settle the trades. When volatility goes up the clearing houses demand more collateral to deal with the higher risk. If the brokerage doesn't want to post the collateral the clearing houses won't let them trade.
- moolcool 6y ago"To be clear, this was a risk-management decision, and was not made on the direction of the market makers we route to." Uh huh...
- zionic 6y agoCitadel alone is 40% of robinhood's revenue
- thereare5lights 6y agoI don't believe them. I presume most people won't either.
- cowllin 6y agoToo little too late as far as brand reputation. Feels like #DeleteUber on steroids.
- systemvoltage 6y agoMark my words - Robinhood is going to be fine and it will have negligible impact. They have a strong product and better than anyone else in the market as a mobile app.
- umanwizard 6y agoDo they have any sort of moat, though? What stops Fidelity or Schwab from hiring 10 iPhone devs and making their app just as fun and easy to use?
- DiabloD3 6y agoHow are they going to deal with the fact half of their reviews on Google Play are 1 star, and their average is now 1.x star? Google isn't going to bend over backwards for them to delete legitimate user reviews.
- Jtsummers 6y agoAndroid isn't the largest share of smart phone users in the US, and it's still 5 stars on the iOS app store.
- aneemzic 6y agoRobinhood is only available in the US.
- Jtsummers 6y agoWhich is why I qualified that. The numbers I've found indicate smartphone users, in the US, favor iOS (greater than 50% market share). So 1-star reviews in one of two app stores, and the app store with fewer users, won't be the thing that undoes Robinhood.
- always_left 6y agoWhat does "limited" even mean?! It's already limited to hedge funds.
- Someone1234 6y agoLikely no margin at all. Maybe even to the point of cash needing to clear into your account (from previous trades/ACH transfers) before you can buy these stocks. Maybe limits/ban on selling of options where the loss can be unlimited (as opposed to buying where the limit is the option's contract price).
- EpicEng 6y agoThey literally barred everyone from buying under any circumstance.
- Someone1234 6y agoHuh? Read the linked article. We're discussing what they could mean by "Limited" tomorrow.
- EpicEng 6y agoAh, sorry, my mistake. RTFM and all that...
- miguelrochefort 6y ago"As a brokerage firm, we have many financial requirements, including SEC net capital obligations and clearinghouse deposits. Some of these requirements fluctuate based on volatility in the markets and can be substantial in the current environment." Can anyone translate that? It seems to be referring to: * https://en.wikipedia.org/wiki/Net_capital_rule https://en.wikipedia.org/wiki/Net_capital_rule * https://en.wikipedia.org/wiki/Automated_clearing_house https://en.wikipedia.org/wiki/Automated_clearing_house
- totalZero 6y ago> SEC net capital obligations They have to meet certain governmental guidelines on deposits vs asset price risk. > clearinghouse deposits Clearing members have to deposit money into clearinghouses as insurance in case a firm goes under.
- miguelrochefort 6y agoI can understand how risk management might be necessary for margin trading, but is it really necessary for non-margin trading? And if it's a scaling issue, shouldn't all stocks be equally affected, rather than cherry-picking just a few?
- zug_zug 6y agoYeah, as a completely disinterested party, I'm entirely unclear as to what legal obligations a middleman like robinhood could be under to prevent them from allowing parties to buy/sell stock on their platform. I think they owe a much greater burden of transparency if they want to convince the neutral, educated who don't have a personal stake in the issue that they didn't manipulate the market (illegally?).
- gmaster1440 6y agoWe're in a bubble that's being used instrumentally in a game of chicken between average joe with RH account and hedge funds on their short positions. There's more to gain from this because of the social aspect (social change and reform), but also more to lose (bubble bursting on the average citizen that has more to lose personally than a fund). I'm obviously not cheering for the funds here, but I do worry for people like my dad who can just buy a stock more easily than order dinner. The social movement is honorable, but at what cost? This has the shape and character of a Joker move, when does the bubble burst?
- 2bitencryption 6y agoI can't help but facepalm that people are genuinely encouraging one another to buy a stock that is so obviously overvalued, and then hold it at that price as long as possible... there are not many guarantees in trading, but that is a guarantee to lose money. and because it's under the guise of "sticking it to the man" people have become even less rational about their money. so when the stock eventually corrects to where it belongs for a dying retailer selling physical media in the digital age... I can only imagine the millions "surprised pikachu face" that will ensue
- simonbarker87 6y agoThe vast majority know what they are doing here, I took a tiny fraction of my money and bought in - less than I would spend on a family meal out. I assume I lost it but it’s fun to have some skin in the game for the ride. Some people are putting silly amounts in but they know they’re not investing based on market fundamentals, they want in on the ride and they know they can loose it all. The issue here is the clear protections/options in place for hedge funds that they can use when they feel a squeeze but absolutely no protection for average joe investor when these guys try to short an otherwise viable business going through a rough patch. GameStop and Blackberry are in the middle of a turn around, shorting them and then telling the market they are failing is unethical and if they feel a bit of pain at the moment then good.
- 6y ago
- oh_sigh 6y agoIf it was decided that most people could only sell stock, not buy it - who exactly is buying the stock?
- deleted 6y ago[deleted]
- rusl1 6y agoHedge funds and other big players of course
- idbehold 6y agoThe ones who shorted
- RyanShook 6y agoNot all brokerages have banned buying so those who are buying are using a different brokerage. A lot of Robinhood users are now moving to other discount brokers like Webull.
- DennisP 6y agoIt was blocked in Robinhood's UI, but on the back end the hedge funds could trade at will. And the hedge funds had to buy a lot of stock to cover their shorts, so it was handy to get the retail buyers out of the way.
- probe 6y agoThis was an awful PR response. I actually buy the reasoning behind it - but putting out a corporate speak like this instead of trying to emotionally relate to upset users? Smh
- EpicEng 6y ago>I actually buy the reasoning behind it - but putting out a corporate speak like this instead of trying to emotionally relate to upset users? Smh Their reasoning makes no sense. If someone isn't buying on margin, who are they protecting exactly? Citadel and Melvin Capital, that's who. The funds weren't "protected", were they?
- whymauri 6y ago"We are deeply grateful to our users" is about to get memed to the moon.
- tartoran 6y agoJust like "we are bullshitting but look at our smile". And there is a way to present a facet of the reality while clouding another one so I'm not saying their message is a complete lie, it's just taken from a controlled perspective.
- benzofuran 6y agoThe class action lawsuits out of this are going to be amazing to watch. Once the announcement was made, how many sales were done in response, which has now blown everything even further into unknown territory?
- 0xy 6y agoRobinhood routes their order flow to Citadel, who stands to directly profit from Robinhood restricting trades on GameStop. It's hard to see how Robinhood's reputation isn't absolutely destroyed after this betrayal.
- goldenkey 6y agoNice try RobinHood. But we all know you are just in bed with the hedge funds that you sell order flow and trading data to.
- dang 6y agoFor pointers to other vertices of this story graph, see https://news.ycombinator.com/item?id=25933543 https://news.ycombinator.com/item?id=25933543.
- tomcam 6y agoYeah fuck them
- awillen 6y agoI don't understand how they can blame capital requirements and potentially having to cover customers' losses (that was Interactive Brokers) for stopping purchases of the stock. Unless you're talking about buying on margin, there's no risk that you'd have to absorb any loss for someone who just buys a share of the stock through you with their own cash.
- legitster 6y ago>Unless you're talking about buying on margin I can assure you, there was a lot of margin purchases happening.
- llbeansandrice 6y agoThen why not do what TD did and restrict buying on margin? Why tell everyone on your platform that a "stock isn't supported"?
- legitster 6y agoI am imagining their platform isn't that robust and it was the easiest way they had to shut it down temporarily.
- llbeansandrice 6y agoRH doesn't know who's buying on margin? That's also not my problem as a RH user that's not buying on margin.
- legitster 6y agoSure. I think there is a lot of incompetence at play here.
- symlinkk 6y agoOk, as a customer why is that my problem? They’re not providing the service they promised. This is absurd.
- firebaze 6y agoJust stay away from robinhood. Use a serious broker. Even if you - privileged as you are - think you can deal with that. Others may not see as far, and be scammed.
- mssundaram 6y agoRecommendation for a serious broker?
- EpicEng 6y agoI've had good experiences with TD and Fidelity.
- systemvoltage 6y agoSchwab, E-Trade.
- jciochon 6y agoWhat are the recommended alternatives?
- mrgreenfur 6y agoAvoid IB, a serious broker that did exactly the same thing as RH today
- legitster 6y agoIt's pretty clear that Robinhood users are incredibly leveraged right now on these transactions. Someone in finance probably gave their team a "Come to Bernanke moment" and pointed out that when the bubble pops they will be eating a huge load of crap where they are on the hook for a bunch of teenagers' margin calls. It's crappy all around, but the ball was in their court for giving so many people the ability to trade on the margin.
- appleflaxen 6y agononsense. the best way to protect this theoretical "bunch of teenagers" would be to block their purchases, but allow buys that are cash in hand. they did't: they banned all buy orders. that tells you everything you need to know.
- ashin 6y agoSo why shut down the ability to buy with cash too?
- SirensOfTitan 6y agoI could buy it if they decided to halt trading on those securities, but they only halted buying.
- eecc 6y agoI don't understand all the kerfuffle. I'm from EU and was looking into investing earlier into Nasdaq symbols, iow before my bank decides to bother letting me pick some crumbs from their plate. So I look around and I figure that what you can do on these online trading platform is to buy some glass-beads from them that happen to correspond to IRL stocks. IOW, these folks are data-mining user sentiment to place orders while offloading risk. Isn't it the same with RH? Aren't they just saying "you can play along, just not with these beads. Too risky for us." Or is RH a straightforward stock broker?
- jzer0cool 6y ago> limited buys of these securities People invest due to variety of reasons. Speculation, undervalue, overvalued, etc. This does not seem like an open market if people cannot buy and sell at their own risk. Sudden changes to what is allowed in the market could also cause some unknown shift to how it works. If things are let to be, at least, at some time, things will settle down ... whether that takes a few days, weeks, years, decades. I think that is how the market works. There appears to be added controlling factors into the market. I would rather be with a brokerage where I can make my own decisions. Not one that suddenly controls what can and cannot be done. TD & Robinhood restricts certain trades: https://www.cnet.com/personal-finance/robinhood-app-td-ameritrade-restrict-trading-of-gamestop-amc-stock/ https://www.cnet.com/personal-finance/robinhood-app-td-ameri...
- Giorgi 6y agoLook at the deadman walking
- Bellamy 6y ago>this was a risk-management decision No it wasn't. It was a reputation management decision and a bad one.
- Cd00d 6y agoI'm honestly confused. I'm seeing a lot of rage in these threads. More than I'd expect. I understand not liking the hedge funds, and wanting to "stick it to the man" in some way, but it seems like more is going on here. Nobody is buying GME long at $400. The price is crazy. GameStop's business is selling used hard copies and leaning into customer dissatisfaction. It's a clear bubble and people are going to be hurt when it pops. There should be some consumer protections, IMHO, because a bunch of people are amping up a price for lulz and hopes of timing things right, but not everyone can win that pyramid scheme. What am I missing that is leading to the rage I'm seeing?
- zwieback 6y agoYou're not missing anything, pyramid scheme at the expense of latecomers, Robinhood or otherwise.
- Miner49er 6y agoIt's a short squeeze, not just a bubble? I bought a single share near $400 for the memes, so I wouldn't say "nobody". Some retail investors will likely lose, sure, but the biggest losers will be the shorts, and retail/longs will win as a whole. That's why people are mad, with Robinhood's manipulation they are setting it up so only the shorts win and almost no remaining retail.
- Cd00d 6y agoI'm sorry I still don't understand and I hope you will clarify. You bought at $400 and expect that to be a good investment? How will the longs that bought above arbitrary number $20 benefit in the long term?
- Miner49er 6y agoNo, at this point it's not about a good investment. It's a "fuck you" to Wall Street. They exploit the working class, get rich, fuck up our economy, and then steal even more from us to save their own asses. People are tired of it. Gamestop is a form of protest. Robinhood did the worst thing they could by messing with it. They sided with Wall Street against the little guy. It shows how rigged the system is. Apparently the little guy can't exploit a bad trade by the rich, it can only go the other way around. So now Robinhood is on the other side of this, and I hope they go under from it.
- jimmar 6y agoI closed some of my positions in these volatile stocks at a small loss because I had no faith that the people in charge would actually let people buy and sell the stocks they wanted to. I didn't lose much, but it feels bad knowing that I only lost because people in power used their influence to protect other people in power at the expense of the average retail investor. I was perfectly willing to accept the risk of owning a small amount of volatile shares. Now, Robinhood is saying they'll open up trading to an extent. I wish wall street would play by a consistent set of rules. I'm definitely not being protected by their heavy handed interventions.
- kimsant 6y agoIf there is one big broker, and the broker is free to control what can be done, and the volumes... The broker is god. Regulation coming for all sides soon.