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The people using Robinhood are to some degree trading on margin, that means that they are trading with money they don't have in their account, which means that

by iNic 6y ago

The people using Robinhood are to some degree trading on margin, that means that they are trading with money they don't have in their account, which means that Robinhood also does not have it, at least not from you. They need to have a buffer of money to deal with the borrowing, which in this case they almost ran out of.

rattray 6y ago
Is that knowingly trading on margin, or just how it works behind the scenes? If the latter, why?
- cashewchoo 6y ago
  The financial system is slow. ACH can take days before you can be sure things won't be reversed, trades take two days to settle, there's various anti-money-laundering policies everywhere that generally take the form of holding on to money for a bit to make shady things easier to track and detect. So, anyway, for lots of reasons, things that users think should be instant, aren't. And that's really bad UX, especially for a platform that depends so much on emotional stuff: "deposit $200 bucks and buy 3 shares of X, leaving you with a $30 cash deposit which RH can then earn interest on" is probably how a large amount of RH's balances come into being. That breaks if it's going to be a 1-day gap between someone depositing their money and then buying the shares. So everyone papers over holes like this with margin.
  - ryandrake 6y ago
    It's amazing that we still accept financial transactions taking days to actually "clear." Surely there's a market opportunity for someone to invent a way to do these anti-money-laundering things without delaying transactions. It's astounding that in 2021, it takes multiple days to increment a number in one database whilst decrementing that number in another database.
disgrunt 6y ago
In this case, it has nothing to do with trading on margin and everything to do with Robin Hood having to cover 10% with the NSCC per the Dodd-Frank rule. [0] [0]: https://www.zerohedge.com/markets/cash-strapped-robinhood-scrambles-raise-1-billion-rich https://www.zerohedge.com/markets/cash-strapped-robinhood-sc...
- infinite8s 6y ago
  Apparently DTCC raised that to 100% for a few of the meme-stocks (GME).

by iNic 6y ago

rattray 6y ago

Is that knowingly trading on margin, or just how it works behind the scenes? If the latter, why?

cashewchoo 6y ago
The financial system is slow. ACH can take days before you can be sure things won't be reversed, trades take two days to settle, there's various anti-money-laundering policies everywhere that generally take the form of holding on to money for a bit to make shady things easier to track and detect. So, anyway, for lots of reasons, things that users think should be instant, aren't. And that's really bad UX, especially for a platform that depends so much on emotional stuff: "deposit $200 bucks and buy 3 shares of X, leaving you with a $30 cash deposit which RH can then earn interest on" is probably how a large amount of RH's balances come into being. That breaks if it's going to be a 1-day gap between someone depositing their money and then buying the shares. So everyone papers over holes like this with margin.
- ryandrake 6y ago
  It's amazing that we still accept financial transactions taking days to actually "clear." Surely there's a market opportunity for someone to invent a way to do these anti-money-laundering things without delaying transactions. It's astounding that in 2021, it takes multiple days to increment a number in one database whilst decrementing that number in another database.

disgrunt 6y ago

In this case, it has nothing to do with trading on margin and everything to do with Robin Hood having to cover 10% with the NSCC per the Dodd-Frank rule. [0] [0]: https://www.zerohedge.com/markets/cash-strapped-robinhood-scrambles-raise-1-billion-rich https://www.zerohedge.com/markets/cash-strapped-robinhood-sc...

infinite8s 6y ago
Apparently DTCC raised that to 100% for a few of the meme-stocks (GME).