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Robinhood also told users it may close out some of their positions as it takes steps to reduce account risks. How can this be legal? If someone is holding a la

Robinhood also told users it may close out some of their positions as it takes steps to reduce account risks. How can this be legal? If someone is holding a large amount of GME stock which they bought at (e.g.) $300 and Robinhood closes out the position below that amount, they're forcing losses on an investor who was specifically holding with the belief that the share prices would go up.

fnbr 6y ago
They probably have a wild EUA that lets them do whatever they want. Probably also an arbitration clause so users can’t sue.
- kasey_junk 6y ago
  It’s not a wild clause for brokerages to be able to close out positions to cover margin trades. It’s bog standard. People may not realize they have a margin account with Robinhood, which is another matter.
  - shiftpgdn 6y ago
    Robin Hood makes it pretty clear when you open a margin account. Not so much when trading in it.
chrisseaton 6y ago
> How can this be legal? I guess the same way that a bank under a run refusing withdrawals is legal.
toomuchtodo 6y ago
If bought on margin, it’s legal and reasonable depending on how fast risk management is responding. If those were cash purchases they liquidated, Robinhood is in a world of hurt.
- chongli 6y ago
  That makes sense. Any position someone bought on margin is subject to being closed out or facing a margin call. Cash purchased positions should be safe. That's just a normal thing we expect for margin accounts though. Is this extra notice being given as a reminder of the terms for margin accounts or are they taking extraordinary action? Hard to say.
  - Denvercoder9 6y ago
    Robin Hood gives users margin accounts by default, so lots of users are unaware that they're actually trading on margin.
- stainforth 6y ago
  They took an action to prevent buying before the market opened. Then they closed those positions ~during~ a point in time when GME was the lowest... Criminal.
  - JarlUlvi 6y ago
    Saw margins accounts being closed with GME sold off @ 120. According to my chart, price dipped down to 110 which appears to coincide with the selloff, but, much of the day the bottom support was around 200, and a peak of around ~483 during the trading day. Capital Obligations doesn't mean you get to toss fiduciary responsibilities, which it appears they did.
  - toomuchtodo 6y ago
    Not only do I agree, I called AOCs congressional number and the house financial services committee’s office to voice complaints regarding this behavior (I am not a Robinhood user, so I have no standing in that regard). I recommend the public complain loudly to both Congress and regulators.
    - blahblahblogger 6y ago
      I agree, I'm glad to see some bipartisan support for holding big-finance to some accountability. I'm not so glad with AOC's response to Ted Cruz which was literally: "Your help is not wanted on this. If you want to help you can resign." So maybe not that bipartisan. I'm not a RH user either and have no standing in this. But I'm watching with interest and hope there's some action on this.
GavinMcG 6y ago
> some of their positions Do you know which ones? Are the positions of the sort you've mentioned susceptible to this? Because it likely refers to those trading on margin, who aren't entitled to expose their broker to risk that they can't reasonably expect to recover from the customer.
- notyourwork 6y ago
  Exactly this, If you have the cash they are likely happy to let you risk it. Margin is a broker problem and they have right to manage their level of risk.
deleted 6y ago
[deleted]
matwood 6y ago
Depending on how new the account is, RH may not have gotten any funds from the account holder yet. But, while waiting for funds, RH will let the user buy some amount of stock (IIRC $1k worth). Is this enough on a large scale of new users to put them into a risky situation? I would hope not, but who knows how close to the capitalization they are running.
- ixwt 6y ago
  Maybe. Motherboard is saying that 50% of RH users owned some GME stock.
- adrr 6y ago
  It doesn’t put user at risk but mean RH is drawing down on their credit line to fund the trade. The probable issues is that clearing houses have capital requirements and the higher volume of trades of high volatility stock requires RH to put more money in to ensure it has money to settle the trades. This is what Rh hit and they need to breather for trades to settle is my educated guess. Money doesn’t move instantly behind the scenes which is why you have weird things like overnight lending where the loan is just long enough for the credits to come in.

fnbr 6y ago

They probably have a wild EUA that lets them do whatever they want. Probably also an arbitration clause so users can’t sue.

kasey_junk 6y ago
It’s not a wild clause for brokerages to be able to close out positions to cover margin trades. It’s bog standard. People may not realize they have a margin account with Robinhood, which is another matter.
- shiftpgdn 6y ago
  Robin Hood makes it pretty clear when you open a margin account. Not so much when trading in it.

chrisseaton 6y ago

> How can this be legal? I guess the same way that a bank under a run refusing withdrawals is legal.

toomuchtodo 6y ago

If bought on margin, it’s legal and reasonable depending on how fast risk management is responding. If those were cash purchases they liquidated, Robinhood is in a world of hurt.

chongli 6y ago
That makes sense. Any position someone bought on margin is subject to being closed out or facing a margin call. Cash purchased positions should be safe. That's just a normal thing we expect for margin accounts though. Is this extra notice being given as a reminder of the terms for margin accounts or are they taking extraordinary action? Hard to say.
- Denvercoder9 6y ago
  Robin Hood gives users margin accounts by default, so lots of users are unaware that they're actually trading on margin.
stainforth 6y ago
They took an action to prevent buying before the market opened. Then they closed those positions ~during~ a point in time when GME was the lowest... Criminal.
- JarlUlvi 6y ago
  Saw margins accounts being closed with GME sold off @ 120. According to my chart, price dipped down to 110 which appears to coincide with the selloff, but, much of the day the bottom support was around 200, and a peak of around ~483 during the trading day. Capital Obligations doesn't mean you get to toss fiduciary responsibilities, which it appears they did.
- toomuchtodo 6y ago
  Not only do I agree, I called AOCs congressional number and the house financial services committee’s office to voice complaints regarding this behavior (I am not a Robinhood user, so I have no standing in that regard). I recommend the public complain loudly to both Congress and regulators.
  - blahblahblogger 6y ago
    I agree, I'm glad to see some bipartisan support for holding big-finance to some accountability. I'm not so glad with AOC's response to Ted Cruz which was literally: "Your help is not wanted on this. If you want to help you can resign." So maybe not that bipartisan. I'm not a RH user either and have no standing in this. But I'm watching with interest and hope there's some action on this.

GavinMcG 6y ago

> some of their positions Do you know which ones? Are the positions of the sort you've mentioned susceptible to this? Because it likely refers to those trading on margin, who aren't entitled to expose their broker to risk that they can't reasonably expect to recover from the customer.

notyourwork 6y ago
Exactly this, If you have the cash they are likely happy to let you risk it. Margin is a broker problem and they have right to manage their level of risk.

deleted 6y ago

[deleted]

matwood 6y ago

Depending on how new the account is, RH may not have gotten any funds from the account holder yet. But, while waiting for funds, RH will let the user buy some amount of stock (IIRC $1k worth). Is this enough on a large scale of new users to put them into a risky situation? I would hope not, but who knows how close to the capitalization they are running.

ixwt 6y ago
Maybe. Motherboard is saying that 50% of RH users owned some GME stock.
adrr 6y ago
It doesn’t put user at risk but mean RH is drawing down on their credit line to fund the trade. The probable issues is that clearing houses have capital requirements and the higher volume of trades of high volatility stock requires RH to put more money in to ensure it has money to settle the trades. This is what Rh hit and they need to breather for trades to settle is my educated guess. Money doesn’t move instantly behind the scenes which is why you have weird things like overnight lending where the loan is just long enough for the credits to come in.