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Obviously the situation needs to be investigated. But I think there is a real possibility they did nothing wrong here. Despite this, the main problem I see wi

Obviously the situation needs to be investigated. But I think there is a real possibility they did nothing wrong here. Despite this, the main problem I see with Robinhood is that with it's gamified UI, ease of access, etc... these 99.9 percentile events are mainly what it is designed for. It's encouraging people to pick up the "hot stock" on social media on a whim. While there may not be legal repercussions for this, it's fundamentally incapable of it's core purpose. If you are new to RH you might not realize that the platform has outages all the time and it costs its users a lot of money. It is straight up dangerous to trade on this platform for the purpose which the UI glorifies. Index funds have done a lot more to democratize finance than RH in my personal view. While commission free sounds fantastic, it comes with some very large hidden costs.

newacct583 6y ago
That I think is the real scandal here. Robinhood was built to market to (and in some sense coevolve with) the wallstreetbets culture of crowd-sourced market manipulation. And that was a great growth hack. Until it grew enough that the crowd source market manipulation was... actually manipulating significant markets. GME has been ballooned to the tune of something like $13B over the past few days, based almost entirely on a flawed understanding of short trading. And absent any discussion about Robinhood in particular, I think we need to be asking whether or not this crowd of people who didn't quite understand shorts were fed those lies at the direction of users who did. Someone has (or will have) made a ton of money here at the expense of the late-arriving GME traders. It seems like we should find out who.
- Miner49er 6y ago
  What is the flaw in the understanding of shorting?
  - newacct583 6y ago
    Most people seem to have been led to understand that the short leverage of 140% meant that when the short call happens, the hedge fund will "have to buy more stock than exists" to settle, and thus that something like an infinite price spike will happen. The same people tend to refer to this as a "naked short", which it is not[1]. Most of these people seem to have latched onto a theory that the short calls are all coming due today and that they NEED to buy as much GME as possible ahead of the metaphorical rapture. But the hedge funds in question closed out their short positions days ago. The stock right now is being propped up by simple (and misinformed) speculation. And effectively all of the purchase price that people are paying right now is going to end up being transferred to the people with earlier positions who are getting out at the peak of the bubble. [1] A naked short is a short sale where no underlying stock was borrowed first. This is a crime, but only possible for certain very privileged traders with control over the various tracking records. Leverage over 100% just means (for example) that you borrowed a share, sold it, then later went to the same buyer and borrowed it again. You end up owing them "two shares", but not necessarily the same share twice. In practice what happened is that as the stock started rising, Melvin closed its position buy repeatedly buying and returning shares to the tune of 140% of the capitalization. (Edit to add: it seems likely that it did so in combination with a bunch of loans and favors from other hedge funds with the ability to buy and hold GME across the inevitable collapse. The WSB folks complaining about hedge fund corruption and insider dealing aren't wrong.)
    - deleted 6y ago
      [deleted]
    - samstave 6y ago
      How does one borrow a share of stock?
      - arcticbull 6y ago
        Go to a broker, search for the security you're interested in but don't have a position in. Hit sell. You will receive cash, and you will see a negative number of shares in your account.
    - MattGaiser 6y ago
      > But the hedge funds in question closed out their short positions days ago. I have asked people about this. They accuse me of buying into corporate media propaganda. Melvin must still be in and be near exploding in their minds.
      - nrmitchi 6y ago
        At this point "Melvin Capital's position" seems like more of a conspiracy theory than anything based in fact.
      - dasb 6y ago
        They put ads on Twitter saying the had closed their positions. Why would someone put ads on Twitter saying that? They're either lying or playing 4D chess. https://old.reddit.com/r/wallstreetbets/comments/l8539h/cnbc_now_running_ads_promoting_that_melvin/ https://old.reddit.com/r/wallstreetbets/comments/l8539h/cnbc...
        newacct583 6y ago
        That link is to a screenshot of a routine promoter for a CNBC show. I mean, I guess it's possible that this was done because CNBC took a kickback from Melvin to put paid content out on its twitter feed, but that would be a huge, huge scandal if so, much larger than the story of Melvin failing would be. CNBC may be business journalism but they're still selling journalism under the NBC brand. They don't do that, basically. This is a conspiracy theory.
  - deleted 6y ago
    [deleted]
  - majormajor 6y ago
    "The short interest staying at a similar range means nobody has closed out their old positions so we can keep squeezing" seems to be a big one. If you assume that new short positions are being opened - and at the recent prices, that's not an entirely unattractive thing to do - then the short interest staying steady suggests some positions being closed and others being opened, and tells you little about single actors. And anyone opening short positions at today's prices is basically "resetting the clock" on how long you'd need to squeeze to get them to back down... so if I were to sell it short now, I'd be betting that some folks making some of their first investments ever to ride the hype train are going to be more likely to blink first than I am.
    - ticviking 6y ago
      The WSB guys are talking about this in their coded meme terms about diamond hands and it's not over til it's over language. They're basically loudly signalling that they will not sell until the short float is down.
      - newacct583 6y ago
        Trust the plan, as it were. Where they go one, they go all. It's really eerie, the overlap between the worldviews.
        rzz3 6y ago
        Overlap between which world views? Are you saying between the short sellers’ world views and WSB’s? I have a feeling that a lot of the people on WSB actually work on Wall Street and are just on their phones at work. There seem to be some experienced professional traders there(among many who aren’t), but I don’t see much similarity between them and the shorters in particular.
        newacct583 6y ago
        I'm saying that WSB true believers and Qanon nuts sound similar and use similar logic.
- samstave 6y ago
  Do we know if any of the C-Suite of GME sold a ton of shares during this debacle?
  - astrange 6y ago
    If they did, it would be a coincidence, since corporate officers usually can't sell shares whenever they want. GME might have sold new shares though; they were already set up to do this at any time. https://thefly.com/landingPageNews.php?id=3209193&headline=GME-GameStop-to-file-shelf-registration-for-atthemarket-share-offerings https://thefly.com/landingPageNews.php?id=3209193&headline=G... Technically selling your own stock at a ridiculous price might be securities fraud though…
  - bunnyfoofoo 6y ago
    Some did a couple weeks ago: https://finviz.com/quote.ashx?t=GME https://finviz.com/quote.ashx?t=GME Scroll to the bottom, there’s an SEC filing section. Nothing to write home about though.
- TheOtherHobbes 6y ago
  Speculation: We know how easy and cheap it is to buy anonymous Twitter and Facebook accounts and use them to create a convenient illusion of crowd sentiment. We also know that Bitcoin appears to have been pumped and dumped through a number of cycles. https://www.financemagnates.com/cryptocurrency/interview/crypto-market-manipulation-is-still-alive-and-well-says-orbs-ilan-sterk/ https://www.financemagnates.com/cryptocurrency/interview/cry... If - hypothetically, ignoring the nominal legalities - it were possible to do the same on Reddit without leaving too obvious a trail, what's to stop one or a small number of players from running a virtual operation that creates this kind of sentiment for trading? And then betting for or against it - or perhaps both, in sequence - for some very easy money?
  - walleeee 6y ago
    It's a good point. Many of the more popular subs are transparently astroturfed, and more than a few mods are bought and paid for. Reddit is already neck deep in information warfare. I'd be surprised if what you describe isn't already happening, although who knows at what scale.
vincentmarle 6y ago
> But I think there is a real possibility they did nothing wrong here. They did blatantly lie about their liquidity problems. They didn't mention it in their fluff blog post. Their CEO smirked on national TV and insisted it was not about liquidity. Turns out it was. That's the problem.
- WrtCdEvrydy 6y ago
  No sector of the finance industry is ever honest about liquidity... too much fear of a panic.
  - lupire 6y ago
    IB chairman was honest, and WSBers predicably called him a criminal for it. https://www.cnbc.com/2021/01/28/interactive-brokers-restricted-gamestop-trading-to-protect-the-market-says-chairman-peterffy.html https://www.cnbc.com/2021/01/28/interactive-brokers-restrict...
    - ashtonkem 6y ago
      I wouldn’t really take any subreddit on its word about what the law is and who has broken it.
- swalsh 6y ago
  The messaging was certainly problematic. But the actions seem to be done in good faith.
- valuearb 6y ago
  If he admitted how close they were to insolvency Robinhood would be out of business and no one would be getting their trades closed. Financial firms never warn about liquidity issues to prevent a run on their bank.
  - FemmeAndroid 6y ago
    Not commenting and saying it wasn’t a liquidity event are very different things.
cma 6y ago
> Despite this, the main problem I see with Robinhood is that with it's gamified UI, ease of access, etc... these 99.9 percentile events are mainly what it is designed for. It's encouraging people to pick up the "hot stock" on social media on a whim. Landline phones and CNBC in the dot com boom and after could do much the same. They had a show where a guy just yelled out symbols all angry with cheesy soundboard effects. Only difference was higher commissions and no buying into fractional shares and stuff.
mike00632 6y ago
There are worse problems with Robinhood, all of which I'm surprised people aren't bringing up more: 1) They've had outages where 100% of stocks were unavailable for trading. 2) Their business model is to offer their users inferior prices and then collect on the arbitrage (Yes, this is illegal. Yes, they are in trouble with the SEC over it). 3) Robinhood isn't transparent with their users about the risks of trading options and trading on margin. Some of the barriers they've removed for their users to make risky bets were there for regulatory reasons, it's not just a matter of their app being over-gamified.
- MrMan 6y ago
  thank you
- alexpetralia 6y ago
  (2) is false. You can't offer "inferior prices" to customers. It's called the Order Protection Rule of RegNMS. You must price improve the customer, by law. If a bid-offer is 23.01/23.02, Robinhood (but actually Citadel/Two Sigma) _must_ transact with a buy order at 23.0199 or less (the subpenny rule only applies to quotes, not actual trades). The reason Robinhood sells this order flow is because Citadel/Two Sigma would rather collect a spread of almost 1 cent (23.0199-23.01) from _you_ rather than a hedge fund, who may conceivably move the market against the market maker. They are "paying for order flow" (PFOF) - much less than 1 cent - to collect the 1 cent spread from you. Robinhood is in trouble with the SEC for a failure to disclose this relationship to customers, _not_ for having the economic arrangement to begin with.
  - filoleg 6y ago
    (1) is pretty weak too. Yes, they had outages where 100% of stocks were unavailable for trading, which is factually true. What makes that assertion weaker is the fact that other brokerages had the same kind of outages too, and not with less frequency of occurrence either. Which is why (1) is not really a meaningful point against RH specifically.
    - 6y ago
ghaff 6y ago
Commission free is pretty much the norm these days. There are exceptions, but the norm. I don't disagree that, for most people, just investing in index funds is probably the best approach.
lupire 6y ago
This is the weird part. If RH is in the wrong, the crime they committed was giving users what the users thought they wanted (all gas, no brakes, no seatbelts).
ashtonkem 6y ago
It seems to me like the regulatory framework around brokerages like Robinhood that gamify trading need to be fixed, but it smells like something that’ll take an act of congress.
- Dma54rhs 6y ago
  Which makes retail harder to invest and one of the reasons why people are mad is that they are not allowed to participate in the stock market. It doesn't seem like there's a winning formula here. The term professional investor is already under fire but it's literally by the decision makers to protect you. Not many people like that.

newacct583 6y ago

That I think is the real scandal here. Robinhood was built to market to (and in some sense coevolve with) the wallstreetbets culture of crowd-sourced market manipulation. And that was a great growth hack. Until it grew enough that the crowd source market manipulation was... actually manipulating significant markets. GME has been ballooned to the tune of something like $13B over the past few days, based almost entirely on a flawed understanding of short trading. And absent any discussion about Robinhood in particular, I think we need to be asking whether or not this crowd of people who didn't quite understand shorts were fed those lies at the direction of users who did. Someone has (or will have) made a ton of money here at the expense of the late-arriving GME traders. It seems like we should find out who.

Miner49er 6y ago
What is the flaw in the understanding of shorting?
- newacct583 6y ago
  Most people seem to have been led to understand that the short leverage of 140% meant that when the short call happens, the hedge fund will "have to buy more stock than exists" to settle, and thus that something like an infinite price spike will happen. The same people tend to refer to this as a "naked short", which it is not[1]. Most of these people seem to have latched onto a theory that the short calls are all coming due today and that they NEED to buy as much GME as possible ahead of the metaphorical rapture. But the hedge funds in question closed out their short positions days ago. The stock right now is being propped up by simple (and misinformed) speculation. And effectively all of the purchase price that people are paying right now is going to end up being transferred to the people with earlier positions who are getting out at the peak of the bubble. [1] A naked short is a short sale where no underlying stock was borrowed first. This is a crime, but only possible for certain very privileged traders with control over the various tracking records. Leverage over 100% just means (for example) that you borrowed a share, sold it, then later went to the same buyer and borrowed it again. You end up owing them "two shares", but not necessarily the same share twice. In practice what happened is that as the stock started rising, Melvin closed its position buy repeatedly buying and returning shares to the tune of 140% of the capitalization. (Edit to add: it seems likely that it did so in combination with a bunch of loans and favors from other hedge funds with the ability to buy and hold GME across the inevitable collapse. The WSB folks complaining about hedge fund corruption and insider dealing aren't wrong.)
  - deleted 6y ago
    [deleted]
  - samstave 6y ago
    How does one borrow a share of stock?
    - arcticbull 6y ago
      Go to a broker, search for the security you're interested in but don't have a position in. Hit sell. You will receive cash, and you will see a negative number of shares in your account.
  - MattGaiser 6y ago
    > But the hedge funds in question closed out their short positions days ago. I have asked people about this. They accuse me of buying into corporate media propaganda. Melvin must still be in and be near exploding in their minds.
    - nrmitchi 6y ago
      At this point "Melvin Capital's position" seems like more of a conspiracy theory than anything based in fact.
    - dasb 6y ago
      They put ads on Twitter saying the had closed their positions. Why would someone put ads on Twitter saying that? They're either lying or playing 4D chess. https://old.reddit.com/r/wallstreetbets/comments/l8539h/cnbc_now_running_ads_promoting_that_melvin/ https://old.reddit.com/r/wallstreetbets/comments/l8539h/cnbc...
      - newacct583 6y ago
        That link is to a screenshot of a routine promoter for a CNBC show. I mean, I guess it's possible that this was done because CNBC took a kickback from Melvin to put paid content out on its twitter feed, but that would be a huge, huge scandal if so, much larger than the story of Melvin failing would be. CNBC may be business journalism but they're still selling journalism under the NBC brand. They don't do that, basically. This is a conspiracy theory.
- deleted 6y ago
  [deleted]
- majormajor 6y ago
  "The short interest staying at a similar range means nobody has closed out their old positions so we can keep squeezing" seems to be a big one. If you assume that new short positions are being opened - and at the recent prices, that's not an entirely unattractive thing to do - then the short interest staying steady suggests some positions being closed and others being opened, and tells you little about single actors. And anyone opening short positions at today's prices is basically "resetting the clock" on how long you'd need to squeeze to get them to back down... so if I were to sell it short now, I'd be betting that some folks making some of their first investments ever to ride the hype train are going to be more likely to blink first than I am.
  - ticviking 6y ago
    The WSB guys are talking about this in their coded meme terms about diamond hands and it's not over til it's over language. They're basically loudly signalling that they will not sell until the short float is down.
    - newacct583 6y ago
      Trust the plan, as it were. Where they go one, they go all. It's really eerie, the overlap between the worldviews.
      - rzz3 6y ago
        Overlap between which world views? Are you saying between the short sellers’ world views and WSB’s? I have a feeling that a lot of the people on WSB actually work on Wall Street and are just on their phones at work. There seem to be some experienced professional traders there(among many who aren’t), but I don’t see much similarity between them and the shorters in particular.
        newacct583 6y ago
        I'm saying that WSB true believers and Qanon nuts sound similar and use similar logic.
samstave 6y ago
Do we know if any of the C-Suite of GME sold a ton of shares during this debacle?
- astrange 6y ago
  If they did, it would be a coincidence, since corporate officers usually can't sell shares whenever they want. GME might have sold new shares though; they were already set up to do this at any time. https://thefly.com/landingPageNews.php?id=3209193&headline=GME-GameStop-to-file-shelf-registration-for-atthemarket-share-offerings https://thefly.com/landingPageNews.php?id=3209193&headline=G... Technically selling your own stock at a ridiculous price might be securities fraud though…
- bunnyfoofoo 6y ago
  Some did a couple weeks ago: https://finviz.com/quote.ashx?t=GME https://finviz.com/quote.ashx?t=GME Scroll to the bottom, there’s an SEC filing section. Nothing to write home about though.
TheOtherHobbes 6y ago
Speculation: We know how easy and cheap it is to buy anonymous Twitter and Facebook accounts and use them to create a convenient illusion of crowd sentiment. We also know that Bitcoin appears to have been pumped and dumped through a number of cycles. https://www.financemagnates.com/cryptocurrency/interview/crypto-market-manipulation-is-still-alive-and-well-says-orbs-ilan-sterk/ https://www.financemagnates.com/cryptocurrency/interview/cry... If - hypothetically, ignoring the nominal legalities - it were possible to do the same on Reddit without leaving too obvious a trail, what's to stop one or a small number of players from running a virtual operation that creates this kind of sentiment for trading? And then betting for or against it - or perhaps both, in sequence - for some very easy money?
- walleeee 6y ago
  It's a good point. Many of the more popular subs are transparently astroturfed, and more than a few mods are bought and paid for. Reddit is already neck deep in information warfare. I'd be surprised if what you describe isn't already happening, although who knows at what scale.

vincentmarle 6y ago

> But I think there is a real possibility they did nothing wrong here. They did blatantly lie about their liquidity problems. They didn't mention it in their fluff blog post. Their CEO smirked on national TV and insisted it was not about liquidity. Turns out it was. That's the problem.

WrtCdEvrydy 6y ago
No sector of the finance industry is ever honest about liquidity... too much fear of a panic.
- lupire 6y ago
  IB chairman was honest, and WSBers predicably called him a criminal for it. https://www.cnbc.com/2021/01/28/interactive-brokers-restricted-gamestop-trading-to-protect-the-market-says-chairman-peterffy.html https://www.cnbc.com/2021/01/28/interactive-brokers-restrict...
  - ashtonkem 6y ago
    I wouldn’t really take any subreddit on its word about what the law is and who has broken it.
swalsh 6y ago
The messaging was certainly problematic. But the actions seem to be done in good faith.
valuearb 6y ago
If he admitted how close they were to insolvency Robinhood would be out of business and no one would be getting their trades closed. Financial firms never warn about liquidity issues to prevent a run on their bank.
- FemmeAndroid 6y ago
  Not commenting and saying it wasn’t a liquidity event are very different things.

cma 6y ago

> Despite this, the main problem I see with Robinhood is that with it's gamified UI, ease of access, etc... these 99.9 percentile events are mainly what it is designed for. It's encouraging people to pick up the "hot stock" on social media on a whim. Landline phones and CNBC in the dot com boom and after could do much the same. They had a show where a guy just yelled out symbols all angry with cheesy soundboard effects. Only difference was higher commissions and no buying into fractional shares and stuff.

mike00632 6y ago

There are worse problems with Robinhood, all of which I'm surprised people aren't bringing up more: 1) They've had outages where 100% of stocks were unavailable for trading. 2) Their business model is to offer their users inferior prices and then collect on the arbitrage (Yes, this is illegal. Yes, they are in trouble with the SEC over it). 3) Robinhood isn't transparent with their users about the risks of trading options and trading on margin. Some of the barriers they've removed for their users to make risky bets were there for regulatory reasons, it's not just a matter of their app being over-gamified.

MrMan 6y ago
thank you
alexpetralia 6y ago
(2) is false. You can't offer "inferior prices" to customers. It's called the Order Protection Rule of RegNMS. You must price improve the customer, by law. If a bid-offer is 23.01/23.02, Robinhood (but actually Citadel/Two Sigma) _must_ transact with a buy order at 23.0199 or less (the subpenny rule only applies to quotes, not actual trades). The reason Robinhood sells this order flow is because Citadel/Two Sigma would rather collect a spread of almost 1 cent (23.0199-23.01) from _you_ rather than a hedge fund, who may conceivably move the market against the market maker. They are "paying for order flow" (PFOF) - much less than 1 cent - to collect the 1 cent spread from you. Robinhood is in trouble with the SEC for a failure to disclose this relationship to customers, _not_ for having the economic arrangement to begin with.
- filoleg 6y ago
  (1) is pretty weak too. Yes, they had outages where 100% of stocks were unavailable for trading, which is factually true. What makes that assertion weaker is the fact that other brokerages had the same kind of outages too, and not with less frequency of occurrence either. Which is why (1) is not really a meaningful point against RH specifically.
  - 6y ago

ghaff 6y ago

Commission free is pretty much the norm these days. There are exceptions, but the norm. I don't disagree that, for most people, just investing in index funds is probably the best approach.

lupire 6y ago

This is the weird part. If RH is in the wrong, the crime they committed was giving users what the users thought they wanted (all gas, no brakes, no seatbelts).

ashtonkem 6y ago

It seems to me like the regulatory framework around brokerages like Robinhood that gamify trading need to be fixed, but it smells like something that’ll take an act of congress.

Dma54rhs 6y ago
Which makes retail harder to invest and one of the reasons why people are mad is that they are not allowed to participate in the stock market. It doesn't seem like there's a winning formula here. The term professional investor is already under fire but it's literally by the decision makers to protect you. Not many people like that.