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From a distance, this is all a storm in a teacup. It's a small handful of stocks, and every single one in S&P500 is waaaay bigger, in terms of trading volumes a

From a distance, this is all a storm in a teacup. It's a small handful of stocks, and every single one in S&P500 is waaaay bigger, in terms of trading volumes and market cap. Anything can happen, but in finance terms, this is tiny so far.

dageshi 6y ago
If that's the case I'm kinda confused why trading platforms keep banning trades in these particular meme stocks?
- klodolph 6y ago
  Because they are forced to carry collateral to make the trades happen, and need more collateral for more volatile stocks.
- snet0 6y ago
  Because of the volatility of the stock, I believe. 100->300->200->300 in the space of no time at all. You could've watched the stock just jump all over the place in real-time, pretty much.
- andreygrehov 6y ago
  In the case of Robinhood: > On Thursday, Robinhood was forced to stop customers from buying a number of stocks like GameStop that were heavily traded this week. To continue operating, it drew on a line of credit from six banks amounting to between $500 million and $600 million to meet higher margin, or lending, requirements from its central clearing facility for stock trades, known as the Depository Trust & Clearing Corporation.
- rich_sasha 6y ago
  What's small for the whole market isn't necessarily small for Robin Hood. It's not out of the question that Robin Hood could go under as a result of these shenanigans. Just very unlikely that would trigger any serious fallout downwind.
- ThrustVectoring 6y ago
  It's down to minutiae in the collateral brokers have to post to ensure that the clearing house doesn't eat losses. Trades on Wednesday aren't settled until Friday, so if a brokerage firm dies in the interim they have an obligation to complete a bunch of trades that they might not have cash for, and unwinding that exposes counterparties to the price moves in the interim. RH users have been buying a lot of meme stocks that move a lot in price, so they have to put up vast amounts of funds to ensure that nobody else suffers losses if they were to back out of the unsettled trades.
davio 6y ago
GME has the market cap of a S&P300 sized company right now.
acover 6y ago
The issue isn't GME market cap vs the S&P 500. It's that the clearing houses, exchanges and other intermediaries that guarantee every trade may go bankrupt due to the $15+ billion loss on options that they may have to cover.
- dls2016 6y ago
  Yeah everyone says short sales have "infinite loss potential", but at some point the lender will recognize that those shares aren't coming back.
- rich_sasha 6y ago
  I'd be very worried about Robin Hood's solvency, since they let people trade on margins, and retail investors are presumably difficult to get debts out from. I seriously doubt they underwrite their own options, more likely they just sell some broker's options. Otherwise... sure some funds might lose a lot of money. But a lot of money for a fund (and it's investors). I wouldn't say we're seeing anything like systemic risk. If nothing else, Redditors' pockets are only so deep, and there's only so much meme stocks they can buy. So where does it leave us? Perhaps Robin Hood might go under (though it looks like they learnt their lesson and got some cash, so maybe not). Some funds went under, and maybe some other will too. But generally, funds are not major systemic risk. They are speculative money. It's been going on for long enough that clearing houses requested the higher margins already. I don't think banks have any real skin in this game. What was so terrible about 2008 financial crash, from the technocratic point of view, was that it was banks that were affected, and they are, among other things, the very plumbing of the financial system we all depend on. Of course life can prove me wrong :) but I'm not remotely worried atm.
- jiofih 6y ago
  Why do clearing houses have to cover losses, isn’t it the options seller on the other side that takes it?
  - acover 6y ago
    Let's say you are buying an option contract on an exchange. You don't know who is selling to you and whether they can actually pay you when the time comes. In order to solve this issue, intermediates act as a guarantor of all transactions allowing investors to treat each seller the same. This lets investors only care about price instead of "who". I am not an expert, I only have very surface knowledge and don't know the exact chain of intermediaries for each market but I know one such guarantor is the Chicago mercantile exchange. https://www.cmegroup.com/clearing/risk-management.html https://www.cmegroup.com/clearing/risk-management.html
dkrich 6y ago
I’d be very careful about making this assumption. There is always bleed over in unexpected ways. When these stocks spiked on Wednesday the market as a whole came down hard. Perception is extremely important and if people start to fear that brokerages could be insolvent or just lose faith in the valuations of stocks as a whole it could definitely effect the entire market.
- llampx 6y ago
  I follow the markets, and the market does a hard mini-crash about once every two weeks. You don't notice it as a buy-and-hold investor, but it raises the hackles of many short-term traders.
marcosdumay 6y ago
It's not because of this stock. The question is quite reasonable because some funds were overexposed into it, and the funds are much larger.
kart23 6y ago
the inverse correlation between the S&P and GME style stocks looks strong over the last couple days.

dageshi 6y ago

If that's the case I'm kinda confused why trading platforms keep banning trades in these particular meme stocks?

klodolph 6y ago
Because they are forced to carry collateral to make the trades happen, and need more collateral for more volatile stocks.
snet0 6y ago
Because of the volatility of the stock, I believe. 100->300->200->300 in the space of no time at all. You could've watched the stock just jump all over the place in real-time, pretty much.
andreygrehov 6y ago
In the case of Robinhood: > On Thursday, Robinhood was forced to stop customers from buying a number of stocks like GameStop that were heavily traded this week. To continue operating, it drew on a line of credit from six banks amounting to between $500 million and $600 million to meet higher margin, or lending, requirements from its central clearing facility for stock trades, known as the Depository Trust & Clearing Corporation.
rich_sasha 6y ago
What's small for the whole market isn't necessarily small for Robin Hood. It's not out of the question that Robin Hood could go under as a result of these shenanigans. Just very unlikely that would trigger any serious fallout downwind.
ThrustVectoring 6y ago
It's down to minutiae in the collateral brokers have to post to ensure that the clearing house doesn't eat losses. Trades on Wednesday aren't settled until Friday, so if a brokerage firm dies in the interim they have an obligation to complete a bunch of trades that they might not have cash for, and unwinding that exposes counterparties to the price moves in the interim. RH users have been buying a lot of meme stocks that move a lot in price, so they have to put up vast amounts of funds to ensure that nobody else suffers losses if they were to back out of the unsettled trades.

davio 6y ago

GME has the market cap of a S&P300 sized company right now.

acover 6y ago

The issue isn't GME market cap vs the S&P 500. It's that the clearing houses, exchanges and other intermediaries that guarantee every trade may go bankrupt due to the $15+ billion loss on options that they may have to cover.

dls2016 6y ago
Yeah everyone says short sales have "infinite loss potential", but at some point the lender will recognize that those shares aren't coming back.
rich_sasha 6y ago
I'd be very worried about Robin Hood's solvency, since they let people trade on margins, and retail investors are presumably difficult to get debts out from. I seriously doubt they underwrite their own options, more likely they just sell some broker's options. Otherwise... sure some funds might lose a lot of money. But a lot of money for a fund (and it's investors). I wouldn't say we're seeing anything like systemic risk. If nothing else, Redditors' pockets are only so deep, and there's only so much meme stocks they can buy. So where does it leave us? Perhaps Robin Hood might go under (though it looks like they learnt their lesson and got some cash, so maybe not). Some funds went under, and maybe some other will too. But generally, funds are not major systemic risk. They are speculative money. It's been going on for long enough that clearing houses requested the higher margins already. I don't think banks have any real skin in this game. What was so terrible about 2008 financial crash, from the technocratic point of view, was that it was banks that were affected, and they are, among other things, the very plumbing of the financial system we all depend on. Of course life can prove me wrong :) but I'm not remotely worried atm.
jiofih 6y ago
Why do clearing houses have to cover losses, isn’t it the options seller on the other side that takes it?
- acover 6y ago
  Let's say you are buying an option contract on an exchange. You don't know who is selling to you and whether they can actually pay you when the time comes. In order to solve this issue, intermediates act as a guarantor of all transactions allowing investors to treat each seller the same. This lets investors only care about price instead of "who". I am not an expert, I only have very surface knowledge and don't know the exact chain of intermediaries for each market but I know one such guarantor is the Chicago mercantile exchange. https://www.cmegroup.com/clearing/risk-management.html https://www.cmegroup.com/clearing/risk-management.html

dkrich 6y ago

I’d be very careful about making this assumption. There is always bleed over in unexpected ways. When these stocks spiked on Wednesday the market as a whole came down hard. Perception is extremely important and if people start to fear that brokerages could be insolvent or just lose faith in the valuations of stocks as a whole it could definitely effect the entire market.

llampx 6y ago
I follow the markets, and the market does a hard mini-crash about once every two weeks. You don't notice it as a buy-and-hold investor, but it raises the hackles of many short-term traders.

marcosdumay 6y ago

It's not because of this stock. The question is quite reasonable because some funds were overexposed into it, and the funds are much larger.

kart23 6y ago

the inverse correlation between the S&P and GME style stocks looks strong over the last couple days.