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> didn’t have the capital to clear trades of super volatile stocks As long as people executing buy orders have enough cash or margin in their account to cover

> didn’t have the capital to clear trades of super volatile stocks As long as people executing buy orders have enough cash or margin in their account to cover the purchase, how is this a problem?

dodobirdlord 6y ago
Well, the margin in those accounts is specifically Robinhood’s problem.
- gmethowaway 6y ago
  If margin is the only problem, why many brokers disallowed buying GME stock on non margin accounts?
esoterica 6y ago
It's not about the relationship between the end user and the broker, it's about the relationship between the broker and the clearing house. Trades take two days to settle, and the brokerage needs to post collateral with the clearing house to reassure them that they have enough funds to settle the trades. When volatility goes up, clearing houses demand more collateral to allow further trading, which the brokerage might be unwilling or unable to provide. This is independent of whether the end user is using margin.
- skosch 6y ago
  Well, in a world where users had to have fully funded their accounts before making any orders, the clearinghouse would have nothing to worry about. So it's not exactly independent from whether end users are using margin. It looks like RH let hordes of new users onto the platform and allowed them to put in GME orders before having those users' cash in the bank. Now the clearinghouse sees the volatility, throws up its hands and goes "listen RH, no more of these crazy GME orders from you until you have the cash to pay for them". Understandable – but that should be RH's problem, not that of its users. What's not OK is RH's sledgehammer solution of disabling buying for all users, even those whose accounts are fully funded, not to mention force-selling people's shares against their will. IMHO they deserve all of the anger and lawsuits currently directed at them. (Edit: unless, of course, they are only force-selling stocks that were bought on margin in the first place, and if their T&C let them do that, in which case ¯\_(ツ)_/¯)
  - esoterica 6y ago
    The clearing house doesn't know who is trading on margin and who isn't. They don't have visibility into the brokerage's interactions with their clients. They can't "only allow trading for non-margin accounts".
    - skosch 6y ago
      No, but RH knows, and could make that distinction if they wanted to. RH is punishing margin and non-margin users alike until it has enough cash again to resume making orders. To be clear, the RH T&C very broadly protect them in case of any arbitrary service interruption, so on paper they're probably entitled to do whatever they want. But at the end of the day, it was them who got caught with their pants down because they went too far in their UX/risk tradeoff, and now users are paying the price and are understandably pissed.

> didn’t have the capital to clear trades of super volatile stocks As long as people executing buy orders have enough cash or margin in their account to cover the purchase, how is this a problem?

dodobirdlord 6y ago

Well, the margin in those accounts is specifically Robinhood’s problem.

gmethowaway 6y ago
If margin is the only problem, why many brokers disallowed buying GME stock on non margin accounts?

esoterica 6y ago

It's not about the relationship between the end user and the broker, it's about the relationship between the broker and the clearing house. Trades take two days to settle, and the brokerage needs to post collateral with the clearing house to reassure them that they have enough funds to settle the trades. When volatility goes up, clearing houses demand more collateral to allow further trading, which the brokerage might be unwilling or unable to provide. This is independent of whether the end user is using margin.

skosch 6y ago
Well, in a world where users had to have fully funded their accounts before making any orders, the clearinghouse would have nothing to worry about. So it's not exactly independent from whether end users are using margin. It looks like RH let hordes of new users onto the platform and allowed them to put in GME orders before having those users' cash in the bank. Now the clearinghouse sees the volatility, throws up its hands and goes "listen RH, no more of these crazy GME orders from you until you have the cash to pay for them". Understandable – but that should be RH's problem, not that of its users. What's not OK is RH's sledgehammer solution of disabling buying for all users, even those whose accounts are fully funded, not to mention force-selling people's shares against their will. IMHO they deserve all of the anger and lawsuits currently directed at them. (Edit: unless, of course, they are only force-selling stocks that were bought on margin in the first place, and if their T&C let them do that, in which case ¯\_(ツ)_/¯)
- esoterica 6y ago
  The clearing house doesn't know who is trading on margin and who isn't. They don't have visibility into the brokerage's interactions with their clients. They can't "only allow trading for non-margin accounts".
  - skosch 6y ago
    No, but RH knows, and could make that distinction if they wanted to. RH is punishing margin and non-margin users alike until it has enough cash again to resume making orders. To be clear, the RH T&C very broadly protect them in case of any arbitrary service interruption, so on paper they're probably entitled to do whatever they want. But at the end of the day, it was them who got caught with their pants down because they went too far in their UX/risk tradeoff, and now users are paying the price and are understandably pissed.