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> float your risky position Nobody is complaining Robinhood disabled naked calls/puts on volatile stocks. How is not illegal for Robinhood to disable cash acc

> float your risky position Nobody is complaining Robinhood disabled naked calls/puts on volatile stocks. How is not illegal for Robinhood to disable cash accounts from buying stocks? Your cash is transferred and deposited. If the stock price crashed, it crashed, investors still own the stocks with their cash paid.

nrmitchi 6y ago
A large part of Robinhood's entire product is papering over the difference between a cash account and a margin account, and hiding the intracacies and timing of the underlying market. > Your cash is transferred and deposited. When you open a new account, and start a transfer from your bank, that is not instantaneous. "Cash" doesn't magically appear in Robinhoods' account. Until that deposit clears, you are effectively operating on margin. If you recently sold something on Robinhood, and want to buy something else, "cash" isn't in your account yet, because that original sale hasn't settled. Robinhood is papering over that as well. This one in particular I'm not saying they shouldn't paper over, since I believe it's less of a risk. But each of these "Robinhood covering your unsettled positions" adds a little bit of risk. This risk adds up. The suggestion of Robinhood only letting people trade with cash that is fully settled into their accounts would completely swap the underlying paradigm of Robinhood's product. Even so, new trades you want to make would have to settle. And as discussed elsewhere, Robinhood has to funds and deposits to cover potential risk associated with those trades until they settle. There is a lot under the hood that is abstracted away by Robinhood, and now those intricacies are leaking out (and completely mis-understood, because one of the premises of Robinhood's product is that you shouldn't have to understand, or even know about, them)
- franklampard 6y ago
  You have many misunderstandings and I am happy to clear them. 1. No, not all Robinhood accounts are margin accounts, a simple google search tells you that: https://robinhood.com/us/en/support/articles/robinhood-accounts/ https://robinhood.com/us/en/support/articles/robinhood-accou... 2. Yesterday, all Cash accounts were disabled from trading GME, that’s a fact and please defend that again. 3. Trading with a margin accounts and trading on margin is different. I can have a margin account and borrow $0 on margin to trade.
  - nrmitchi 6y ago
    > No, not all Robinhood accounts are margin accounts, I don't think I said that; I said that Robinhood papers over the differences in a way such that the end user doesn't explicitly interact in a hugely different way, and it's not explicitly clear what kind of account you have. I did imply that new accounts are all technically margin accounts. The link you provided seems to prove that? > When you sign up for a new account, you’ll automatically start with a Robinhood Instant account, which is a margin account. > 2. Yesterday, all Cash accounts were disabled from trading GME Yes, but I didn't say that this was because they were "margin". I said that this appears to be because Robinhood, as the broker, still requires additional cash on hand to cover these positions until they settle. This is a different thing than the margin issue. > 3. Trading with a margin accounts and trading on margin is different. Yes you're right. But a new user that just signed up may be thinking they are using a cash account, but it's actually a margin account. It also appears that you have to manually downgrade from an "Instant" (margin) account, to a "Cash" account[0], and I highly suspect that most people didn't do that, and thus are still using a margin account. [0] (yes, it is really bad that this link is broken at the moment) https://robinhood.com/us/en/support/articles/downgrading-from-gold/ https://robinhood.com/us/en/support/articles/downgrading-fro...
    - franklampard 6y ago
      I will not argue with you about what Robinhood did to any of the margin accounts, if people borrowed money to trade stocks and Robinhood think that's risky, they have the right to close positions as part of standard risk management. But I am against what they did to the cash accounts (and margin accounts not borrowing money to trade). It seems that you think it's a small portion of all of the accounts, which I disagree. Even if it's only a small portion, what Robinhood did to these cash accounts was unprecedented and unacceptable as a broker. For point 2, I think you are referring to the clearing process. Brokers were liable to cover if clearing houses do not[0]. But that is Robinhood's liquidity issue and not does justify Robinhood disabling cash accounts from buying stocks. [0]https://www.youtube.com/watch?v=7RH4XKP55fM&feature=youtu.be https://www.youtube.com/watch?v=7RH4XKP55fM&feature=youtu.be
infinite8s 6y ago
Dodd-Frank and rules around trade settlement - in particular brokers have to post collateral based on complicated calculation to the clearance firm (DTCC) until the trade clears (usually T+2). Unfortunately it looks like DTCC increased that percentage to 100% for a few names (like GME) - https://twitter.com/KralcTrebor/status/1355172567242469377 https://twitter.com/KralcTrebor/status/1355172567242469377

nrmitchi 6y ago

A large part of Robinhood's entire product is papering over the difference between a cash account and a margin account, and hiding the intracacies and timing of the underlying market. > Your cash is transferred and deposited. When you open a new account, and start a transfer from your bank, that is not instantaneous. "Cash" doesn't magically appear in Robinhoods' account. Until that deposit clears, you are effectively operating on margin. If you recently sold something on Robinhood, and want to buy something else, "cash" isn't in your account yet, because that original sale hasn't settled. Robinhood is papering over that as well. This one in particular I'm not saying they shouldn't paper over, since I believe it's less of a risk. But each of these "Robinhood covering your unsettled positions" adds a little bit of risk. This risk adds up. The suggestion of Robinhood only letting people trade with cash that is fully settled into their accounts would completely swap the underlying paradigm of Robinhood's product. Even so, new trades you want to make would have to settle. And as discussed elsewhere, Robinhood has to funds and deposits to cover potential risk associated with those trades until they settle. There is a lot under the hood that is abstracted away by Robinhood, and now those intricacies are leaking out (and completely mis-understood, because one of the premises of Robinhood's product is that you shouldn't have to understand, or even know about, them)

franklampard 6y ago
You have many misunderstandings and I am happy to clear them. 1. No, not all Robinhood accounts are margin accounts, a simple google search tells you that: https://robinhood.com/us/en/support/articles/robinhood-accounts/ https://robinhood.com/us/en/support/articles/robinhood-accou... 2. Yesterday, all Cash accounts were disabled from trading GME, that’s a fact and please defend that again. 3. Trading with a margin accounts and trading on margin is different. I can have a margin account and borrow $0 on margin to trade.
- nrmitchi 6y ago
  > No, not all Robinhood accounts are margin accounts, I don't think I said that; I said that Robinhood papers over the differences in a way such that the end user doesn't explicitly interact in a hugely different way, and it's not explicitly clear what kind of account you have. I did imply that new accounts are all technically margin accounts. The link you provided seems to prove that? > When you sign up for a new account, you’ll automatically start with a Robinhood Instant account, which is a margin account. > 2. Yesterday, all Cash accounts were disabled from trading GME Yes, but I didn't say that this was because they were "margin". I said that this appears to be because Robinhood, as the broker, still requires additional cash on hand to cover these positions until they settle. This is a different thing than the margin issue. > 3. Trading with a margin accounts and trading on margin is different. Yes you're right. But a new user that just signed up may be thinking they are using a cash account, but it's actually a margin account. It also appears that you have to manually downgrade from an "Instant" (margin) account, to a "Cash" account[0], and I highly suspect that most people didn't do that, and thus are still using a margin account. [0] (yes, it is really bad that this link is broken at the moment) https://robinhood.com/us/en/support/articles/downgrading-from-gold/ https://robinhood.com/us/en/support/articles/downgrading-fro...
  - franklampard 6y ago
    I will not argue with you about what Robinhood did to any of the margin accounts, if people borrowed money to trade stocks and Robinhood think that's risky, they have the right to close positions as part of standard risk management. But I am against what they did to the cash accounts (and margin accounts not borrowing money to trade). It seems that you think it's a small portion of all of the accounts, which I disagree. Even if it's only a small portion, what Robinhood did to these cash accounts was unprecedented and unacceptable as a broker. For point 2, I think you are referring to the clearing process. Brokers were liable to cover if clearing houses do not[0]. But that is Robinhood's liquidity issue and not does justify Robinhood disabling cash accounts from buying stocks. [0]https://www.youtube.com/watch?v=7RH4XKP55fM&feature=youtu.be https://www.youtube.com/watch?v=7RH4XKP55fM&feature=youtu.be

infinite8s 6y ago

Dodd-Frank and rules around trade settlement - in particular brokers have to post collateral based on complicated calculation to the clearance firm (DTCC) until the trade clears (usually T+2). Unfortunately it looks like DTCC increased that percentage to 100% for a few names (like GME) - https://twitter.com/KralcTrebor/status/1355172567242469377 https://twitter.com/KralcTrebor/status/1355172567242469377