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Let me get this straight: 1) RH automatically makes every account a Margin account. 2) RH doesn't make this clear to their customers (buried in the TOS where

by Alupis 6y ago

Let me get this straight: 1) RH automatically makes every account a Margin account. 2) RH doesn't make this clear to their customers (buried in the TOS where they know newbie investors won't look, which makes up probably 99% of their customers). 3) RH allows people to initiate money transfers into RH, but also allows purchasing of stock immediately (on Margin) without informing the customer. 4) Investors believe they've outright purchased stock, because RH app shows the stock in their account, and money now gone (even though it's still pending the transfer). 5) RH then "margin calls" all of the people who had money transfers pending at the time of GME purchase. Ya... that seems pretty predatory in my opinion. Downright shady business... How can this not be construed as market manipulation, even if RH had to do this to save themselves yesterday. RH got themselves into this position in the first place...

j2bax 6y ago
It's just a minor UI discrepancy. Take it easy man!
- manquer 6y ago
  One Robinhood user committed suicide because of a UX design and called it out in their suicide note. UX in financial application is tough , I wouldn't want ever to be handling ux for such applications
  - j2bax 6y ago
    Yeah no kidding. Hopefully people caught my sarcasm. This is an area where UX design is absolutely crucial.
deleted 6y ago
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kbar13 6y ago
the instant availability of funds likely was a growth decision for better on boarding UX. imagine getting a referral from a friend who said hey get in on this stock, installing the app, and having to wait 2-5 business days for ACH to clear. guessing during normal operation this is an acceptable risk for robinhood and users, obviously this isn’t gonna fly when things go wild like the last couple of weeks
- scsilver 6y ago
  Imo The whole gamma squeeze was based on options writers not taking into account how quickly and army of new investors can leverage this instantly available capital.
  - PhantomGremlin 6y ago
    The role of option writers is very much an under-reported part of this whole fiasco. Normally you want option writers to be able to provide liquidity by going naked short when selling calls. Obviously that fails when involving small companies with high short interest and hordes of "4chan found a Bloomberg Terminal" investors. I looked a little at GME during the week and I saw that the option market makers had significantly reduced their participation. I bet that they're also big losers. But that's what they do for a living, it's their own fault if they blew up selling calls naked. They knew the risks. Delta hedging doesn't work when a stock can move 100% in a single day.
- cm2187 6y ago
  Pretty much every broker does that when you buy stocks too. I think most securities settle T+2, which means that you are not the owner (and cash hasn't gone out of the door) until 2 business days after the transaction. But the broker will show your account debited immediately and will add the stock to your portfolio in the UI too. It's well intended but misleading.
  - MattGaiser 6y ago
    https://www.fidelity.com/learning-center/trading-investing/trading/avoiding-cash-trading-violations https://www.fidelity.com/learning-center/trading-investing/t...
gruez 6y ago
>5) RH then "margin calls" all of the people who had money transfers pending at the time of GME purchase. Is there any evidence of this? The article seems to only say that some people got margin called, but didn't say whether those people were using "real" margin or was using the "instant deposit" margin.
- kylecordes 6y ago
  Right, there's probably no way to margin call people who have already initiated the transfer of the money. RH has to float it a few days for the ACH to complete.
  - dylan604 6y ago
    Why in the world does ACH take so damn long to complete? Do the electrons move slower in the ACH network? I make a request to purchase, the funds availability in my account are verified, the withdrawl is requested, then, waiting, waiting, waiting. Why? This is the area I would love to see "distrupted". Force the banks to honor the requests in order they are received (not in the order they choose that is most lucrative to the bank). If a transfer request comes in for a value greater than my account has, decline the transfer.
    - astrange 6y ago
      It's largely artificial and controlled by the Fed; it can't really be disrupted since you can't replace the Fed (PayPal and Zelle haven't replaced ACH), but they have shaved off a day in recent years and plan to add actual realtime settlement in the next few years. In the meantime, the computers still work business hours and take off weekends for some reason. > Force the banks to honor the requests in order they are received (not in the order they choose that is most lucrative to the bank). Didn't this already happen?
      - seangrogg 6y ago
        > In the meantime, the computers still work business hours and take off weekends for some reason. They're just making sure they can avoid needing to pay their computers overtime when they get worker's rights. /s
dheera 6y ago
RH is free and doesn't charge commissions. This should be a BIG RED FLAG that you are the product and not the customer. In general, if you aren't paying, they have no interest in keeping you happy.
- ghaff 6y ago
  For regular purchases, most large brokerages don't charge commissions these days on most purchases. Not a particular fan of RH but the fact that they don't charge commissions isn't any more of a flag than in the case of Fidelity.
  - suifbwish 6y ago
    Where do brokerage firms that don’t charge for trades or membership make their money from then?
    - ghaff 6y ago
      Interest on cash/float/loans, management fees on their own funds, "skim" off trades, other fees of various kinds, etc.
    - duemti 6y ago
      it is a red flag indeed. They route orders to market makers that profit from arbitrage (not exchanges), and other shady stuff.
- deelowe 6y ago
  Almost no one charges commission these days.
  - FabHK 6y ago
    A bit like the forex shops at airports that sell you the pound for $1.47, and buy it for $1.27, but charge "no commission"...
    - 6y ago
vineyardmike 6y ago
It’s pretty obvious (at least to me when I signed up) that the “instant money transfer” means margin. Even if you don’t get the concept of “margin” specific to investing, you should get that you’re borrowing against the transfer when you use it. Edit: I just deposited more money into robinhood, and the screen says "your funds will be transfered in next several days... in meantime, we'll give you access to $X while you wait for the funds to clear" Also, the UI separates your cleared money, from the instant deposit money as 2 line items. It says that its not your money in the UI.
- marcinzm 6y ago
  In the age of the internet (well 30+ years into it even) thinking that digital funds can be transferred instantly seems a pretty sane assumption.
  - ur-whale 6y ago
    It isn't. Settlement is complicated business. Complicated enough that it took the invention of Bitcoin to take it out of the bankers hands and move it to the digital realm. And even then, it was not instantaneous (10mn) until layer two solutions appeared. Thinking that "money can be transferred instantaneously because digital" is not a reasonable assumption.
    - fastball 6y ago
      In the UK bank transfers are instant.
      - ur-whale 6y ago
        They very likely aren't. They just appear to be to the retail crowd.
        marcinzm 6y ago
        It seems to be in fact instant: https://en.wikipedia.org/wiki/Faster_Payments_Service https://en.wikipedia.org/wiki/Faster_Payments_Service
MattGaiser 6y ago
There are all sorts of rules that brokers generally abstract away: https://finance.zacks.com/tax-rules-use-proceeds-stock-sales-buy-new-stocks-8465.html https://finance.zacks.com/tax-rules-use-proceeds-stock-sales... https://www.fidelity.com/learning-center/trading-investing/trading/avoiding-cash-trading-violations https://www.fidelity.com/learning-center/trading-investing/t... My understanding is that you couldn't do day trading without a margin account.
- mrits 6y ago
  I have a margin account but E*Trade let me day trade for years without one. There were rules like you couldn't buy and sell the same stock in the same day but you also got hundreds of violations before they suspended this ability. So if you are more of a day-swing trader and not doing high volume it worked well enough for me.
  - garmaine 6y ago
    The point is you are technically margin-trading when you do that. From the broker's perspective you are trading on margin until your prior trades settle.
    - evolve2k 6y ago
      As a onboarding hack I can see this as a great idea to help people get their first $100-$1000 on the market fast. But the chance of an eventual margin call is almost certain in the long run (as has happened here). It’s time to talk ethics in tech, this was a design decision to not unwind this once the user was embedded or otherwise clarify this upfront. Margin call risk totally must be disclosed and is legally required (in Australia where I am) to be disclosed by any investment professional you paid to setup this sort of arrangement. I’d be fairly confident the same applies to US investment advisers. It’s totally the sort of ‘feature’ that the user could have been advised of around say the 30 day mark. “We’ve set you up a margin account that’s valid for your first $1000, please now confirm if you’d like to continue to carry a margin call risk otherwise were converting you to a standard account.” It’s also super common for margin facilities to allow investors carrying the risk, 24-48 hours to contribute to retain the position, auto-selling out is a last resort.
downrightmike 6y ago
I have a RH, and yeah when you sign up they tell you what margin is and you can choose to not use it as it is riskier. As this is just a 'see what happens' use case for me, I didn't elect margin. And well this is what happens. The predatory part is just giving it out at all to low funds retail traders.
- BoorishBears 6y ago
  99% of the people who use RH could not use it if RH didn't give you "implicit margin". The "democratization" is centered around it And I mean if you want, ask RH and they'll downgrade to to a cash account... just be ready for T+2 and no options trading https://robinhood.com/us/en/support/articles/options-investing/ https://robinhood.com/us/en/support/articles/options-investi... > NOTE: If you start options trading in your Cash account, we’ll automatically upgrade you to an Instant account. If Robinhood only had covered options you'd be right back to: not supporting the way people are using it to enable all this. - In fact, imagine if they didn't do this, all the new people who tried to enter GME would have had to wait 2 days to enter, and much fewer people would have had access to options Ironically I actually think it might have stopped this dead in its tracks by damping the influx of cash
  - kllrnohj 6y ago
    > And I mean if you want, ask RH and they'll downgrade to to a cash account... just be ready for T+2 and no options trading You can do options trading on a cash account. You can only do covered options, but honestly that's probably a good restriction for most.
    - hmaxwell 6y ago
      I think the way it works now is great, being able to go short on naked options with a proper margin maintenance is way smarter than restricting everyone to go long on options or only allow people to sell calls on covered options (which kind of defeats the purpose of a bearish position when you are required to hold the deliverables).
avlewis 6y ago
I really think Robinhood might go out of business before Gamestop.
- VWWHFSfQ 6y ago
  nah this whole thing has been great press for them despite the debacles
  - Igelau 6y ago
    There is such thing as bad press. Every time they've shown up in headlines, I remember how happy I am that they don't have any of my money.
deleted 6y ago
[deleted]
ogre_codes 6y ago
> Ya... that seems pretty predatory in my opinion. I think Hanlon's Razor applies here: "never attribute to malice that which is adequately explained by stupidity" The more I see with this fiasco, the more I feel like RH management just made a platform with a bunch of shortcuts and didn't realize what the unintended consequences of a trading platform with zero friction margin accounts would be. Not absolving them of responsibility, and I've definitely see some places where their choices favor themselves over their users. But the situation is largely out of their control at this point and they are just trying to do damage control.
- jliptzin 6y ago
  Conspiracy theory: This entire GME squeeze was orchestrated by one/many of Robinhood’s competitors who spotted this weakness and knew exactly how to leverage the masses to exploit it and drive RH out of business.
  - sidlls 6y ago
    Yeah, no. This is similar to Republican claims of election fraud: it's entirely plausible (and downright indefensible to not believe) that voting machines are subject to manipulation, but at the same time there's just an astounding lack of evidence any such manipulation exists.
    - bluGill 6y ago
      there clearly has been manipulation of some sort. However not anywhere near enough to turn the election. A couple dead people who voted here and there needs to be investigated, but 10 votes in a state don't change any results.
      - imwillofficial 6y ago
        What are your sources? I haven’t read that 10 fraudulent votes number anywhere. I did watch the video with the woman unpacking the suitcase full of ballots. That wasn’t her best day for sure.
thereare5lights 6y ago
Unless all those users faked their screenshots, it would seem that Robinhood is lying.
015a 6y ago
This is definitely one of those things that may all be somewhere within the bounds of the rules, and the SEC will allow it, as long as you don't fuck it up. A "don't ask don't tell" kind of situation when firms tread into the grey area between the black and white of strict rules. My boss always used to say "We don't have many rules, just don't be the reason why we have to create a rule". 4.5) Because of their insane overuse of margin to ease onboarding, their depository obligations begin bleeding beyond their ability to triage, putting the accounts of both their investors and clients at risk. 5) RH then "margin calls" all of the people who had money transfers pending at the time of GME purchase (in order to reduce the overall risk profile of the robinhood brokerage and to scrape back as much money as possible to cover their depository obligations which they, goto 1, screwed up themselves by offering way too much margin to clients who didn't know they were getting margin (or what it even is)) Over the past two days, Robinhood royally fucked it up, beyond anyone's wildest fears. If they were Chase or BofA or someone, I'd say they're systemic and will get by to survive another day. They're not. Robinhood is finished. If they somehow manage to meet their depository and net capital obligations over the next few trading days, and if they somehow manage to survive the large downturn in users the platform will experience after their actions this week, and if they survive the inevitable congressional hearing, they'll still have the SEC investigation to look forward to.
- the_economist 6y ago
  "survive the large downturn in users the platform will experience after their actions this week" Haven't they been number one in the app store all week: https://www.appannie.com/en/apps/ios/top/ https://www.appannie.com/en/apps/ios/top/
  - laurent92 6y ago
    Those who made it #1 are the ones who want to create an account to participate to bankrupt a hedge fund. I say their next move can be revenge on Robinhood for, at the very least, entertaining the misunderstanding with their customers (="They sold my stock without an order from me" when they were effectively on margin and halfway legit).
  - 6y ago
nrmitchi 6y ago
I completely agree with you right up until the end. Robinhood's entire product is built on a manipulative and predatory premise that making people feel comfortable "trading stocks", whether they fully understand what is happening under the hood, is a net positive. It was bound to blow up eventually, but I disagree with your assumption that this is obviously "market manipulation". If they had to take this action to save themselves, the alternative was worse. Robinhood would have [edit: potentially] gone under while holding all of their customer's stock, and I guess SPIC would have figured it out eventually? No one would have had the option to sell, and Robinhood going under would likely have had a much larger impact on the price of specific securities. I have *absolutely* no idea what would have happened if Robinhood wasn't able to settle trades that it had already made. I assume it would have been an absolute catastrophy. By that logic, Robinhood "manipulated the market" in a way that prevented GME stock from tanking. I would be very concerned here if Robinhood ends up going under for "market manipulation", with no reference to the extremely poor and predatory product decisions that set this up in the first place. We'll just have the next company pop up, promise to do "nothing illegal", and then set up the same house of cards.
- bhk 6y ago
  If they had to take this action to save themselves, they have already betrayed the trust of their customers. > Robinhood's entire product is built on a manipulative and predatory premise that making people feel comfortable "trading stocks", whether they fully understand what is happening under the hood, is a net positive. I think that people generally understand that when they buy stocks, those stocks may go up or down. There is no guarantee of making money. You take your chances. What they don't understand is that the brokerage can sell what they bought at the day's low price, because the account they funded with cold hard cash was termed a margin account. What they don't understand is that their brokerage might arbitrarily decide to prevent them from trading particular issues on a given day. What they don't understand is that, due to their broker's lack of financial prudence, that their broker may need to manipulate the market to their individual disadvantage "for the greater good".
  - nrmitchi 6y ago
Quinner 6y ago
That's absolutely not true. You have to specifically opt-in to trading on margin, read disclosures, and have a minimum $2k balance. Instant deposit is not trading on margin, it's trading on deposits that you make that are instantly available in Robinhood but take a day or two to clear ACH. That's all made clear up front on the screens about Instant Deposit, not buried in T&C.
- nrmitchi 6y ago
  https://robinhood.com/us/en/support/articles/robinhood-accounts/ https://robinhood.com/us/en/support/articles/robinhood-accou... "When you sign up for a new account, you’ll automatically start with a Robinhood Instant account, *which is a margin account*." > it's trading on deposits that you make that are instantly available If it's made instantly available, it is being loaned to you from Robinhood, but that is... still margin. It may be interest free margin, but it's still margin. It is money that has not settled into your account yet. If it's not on margin, you can't use it until it's settled. Hell if you sell a stock and then immediately buy a new one, that is also margin, because, again, the funds have not settled into your account yet. If you want a Cash account (a non-margin account), you can downgrade, and "You won’t have access to instant deposits or instant settlements". The fact that you have to do this manually however is, in my opinion, predatory, and setting up a house of cards that will eventually fall over, because users won't understand what is actually happening. But the fact that it's predatory doesn't make it not true.
  - Quinner 6y ago
    If you want to call that margin, it's margin with 100% collateral. It's not margin in any meaningful sense. It's like if you handed your broker a check and said you wanted to make buy a stock for the value of the check. Would the trade clear before the check? Sure. Is that margin? I really struggle to see how.
    - nrmitchi 6y ago
      > it's margin with 100% collateral Except the collateral hasn't settled yet, so you can't guarantee what could happen. > It's like if you handed your broker a check and said you wanted to make buy a stock for the value of the check. There are tons of things that could happen here. The check could bounce. Your bank could go under. The check could be fake. You could have stolen the check from someone else, and when they see it clear, they'll call their bank and the funds will be withdrawn. > Would the trade clear before the check? Sure. Is that margin? Yes, it is. The broker may choose to loan you the money short term with the assumption that the check will clear, but they don't have to. They could just refuse to make the trade until the funds clear. If they did choose to buy the stock for you, they would be accepting that risk. If your money doesn't clear, they will be stuck with the stock. If this was a share of VTI, with low volatility, they'd likely be fine with it. Even if the check didn't clear, they could just re-sell the stock. It's super unlikely to drastically check in value in the 2 days before the check clears. If this was a share of GME today, they are buying it for you for $350. There is a change that your check doesn't clear. There is a chance that tomorrow GME is worth $50. If both of those things happen, your broker would have paid $350 for a stock that they didn't want, and can only sell for $50, and be stuck holding a $300 loss. Ie, they have loaned you money (even if it's short term and with no interest), but if the account doesn't actually get funded, or a previous trade doesn't actually settle[0], they are left holding the bag, the same as if it was "traditional" margin. [0] This is unlikely, but it could happen for a variety of reasons. I believe this would correlate with much larger issues with the state of the financial system, and in that case would just start compounding issues (because if your trade doesn't settle, then chances are a whole bunch of trades don't settle, and your broker will be left holding the bag for all of them)
hamilyon2 6y ago
I honestly don't think so. Before getting into stock trading, I read about it for a couple of months. About how you can lose money on trading bonds, what is clearing and volatility, how taxes are paid and so, and so. The fact is, you certainly could lose money trading stock, and broker certainly can sell your shares without your permission (in my country). Especially if you are poor. But that is common knowledge. And people losing money on stock exchange, on forex, wherever is nothing interesting or new. Is this predatory behavior? Maybe. Almost no retail investor makes money doing risky trades on stock exchange. That is what those people did. Edit:spelling
- torwayburger 6y ago
  Inversely, they took a position exploiting pretty much exactly what you describe from a hedge fund, and the only reason it didn't work was that it got shut down by powers from above.
retube 6y ago
Cash equities settlement is t+2, as are most transactions in financial markets. This is just how the underlying plumbing of the markets work, nothing to do with robinhood. You have the illusion of instant trading, but under the hood there's a huge amount of boring settlement machinery. Incidently, this is no different to the experience of a big bank or hedge fund trader. Settlement risk is real, and institutions have entire risk management departments devoted to it (banks even need to capitalise for it, to cover precisely these types of scenarios)
- chrisco255 6y ago
  And yet people will still say they can't fathom a single possible use case for crypto. Tokenized, non-custodial securities on blockchain can't come fast enough.
  - retube 6y ago
    With respect i disagree. T+2 is not because of technological limitations of traditional databases or trust issues. Instantaneous settlement is possible (for example in the UK we have instantaneous inter-bank transfers), but it is not desired. Having delayed settlement means you can net offsetting transactions, it means you can handle outages in the infrastructure, it means you can unwind and correct errors.
    - mpmpmpmp 6y ago
      Thank you for this. It's frustrating to hear people making comments who don't have the fundamental understanding of why/how the markets work and are just upset about not being able to join in on the melee and assume it's nefarious behavior. My POV is that it was obviously a risk RH took to not make it more clear what the behavior of people's accounts would be when market volatility is high. But I worked for a Commodity Risk Management Company on their custom derivatives platform and 90% of what we did was around properly valuing customer positions so we could make sure margin requirements were met. This was a huge deal to everyone involved because the counterparty risk was so high for our company.
    - 6y ago
anonytrary 6y ago
> 4) Investors believe they've outright purchased stock, because RH app shows the stock in their account, and money now gone (even though it's still pending the transfer). 5) RH then "margin calls" all of the people who had money transfers pending at the time of GME purchase. Wait, what? That is the first that I'm hearing of this. That's crazy. Even without doing all of this, Robinhood having the ability to unpredictably/arbitrarily decide when to disable/enable actions on stocks is extremely bad for the market. They disguise this as protecting their users, but you cannot expect to have freedom as an investor if you don't know when or if you will be able to make a trade because a stock "isn't allowed right now". Part of the problem is that Robinhood treats their user-base like children. Nobody wants to be protected from risky decisions or from themselves and you can't just do that to people. It is an insult and an unfair withholding of the right of risk and the means to make money from the little guy. That's the dumbest thing I have ever heard. Risk should be a right. Nobody should be able to force you to not take a risk. I understand that talking to someone off a bridge is a wonderful thing, but at the end of the day, that person is never withheld the right to jump.
- emteycz 6y ago
  They didn't decide actions on market, they pulled back their loan to the users which forced the positions to close, as with any other broker (others are transparent about it though). Not that I approve but that's a difference.
  - anonytrary 6y ago
    No... they also put caps on how much stock you can buy for a particular symbol. They are basically controlling the volume and direction of trade for some of these symbols on their platform...
- delaaxe 6y ago
  In reality, every trade on every broker is settled 2 days later because that's how this archaic netting system works. People need to see instant updates so that's what every app shows them
throwaway4good 6y ago
The rules sound quite reasonable to me; Robin Hood is trying to protect itself from the extreme volatility in the wsb/reddit stocks and the higher level of collateral thus required. Running a brokerage is low margin business.
8ytecoder 6y ago
Under normal scenarios this works extremely well. Being able to trade immediately was a boon. Of course I knew that it was margin but the cover scenarios never even arose for the many years I used Robinhood. It was one of the many reasons I used them. (I don’t anymore for other reasons)
sgregnt 6y ago
This is tangential to RH, but nevertheless I think it's a related issue: For many years now I was wondering how exectly the ETF work and whether when I buy an ETF I can be 100% sure the issuer can follow through on their obligations? What mechanism are there in place to insure that ETF will not deviate from the underlying stocks it should represent? I found it difficult to understand the intricacies related to this question. Here is one example: Suppose I was holding ETF with GME stock in it, the ETF issuer might have decided he knows better and sell the stock expecting its price to drop in the future. Meanwhile the issue will attempt to "follow" the stock by other means. Ultimately is there a way to be sure the issuer will not fail, if GME beats all anticipated expectation the issue might fail to reflect the new GME price... What mechanism are there in place to insure that ETF will not deviate from the underlying stock?
stjohnswarts 6y ago
WSB has been trying to push their own version of truth to the media and people seem to be swallowing it whole; that robinhood is basically pure evil and just out to squash the dreams of the WSB geniuses who are trying to stick it to the man. They're really a bunch of whiners. Everything I've read has pointed at that RH has been stretched to their limits financially given their current business model.
jhabdas 6y ago
I don't think anywhere in their terms did it say users are not allowed to trade outside the US. But that didn't stop RH from freezing $800 in my account for a year after making 103% in a day on $VXX and other ETNs during a trip to Mexico in 2017. I eventually got my money back. But it took me a year.

by Alupis 6y ago

j2bax 6y ago

It's just a minor UI discrepancy. Take it easy man!

manquer 6y ago
One Robinhood user committed suicide because of a UX design and called it out in their suicide note. UX in financial application is tough , I wouldn't want ever to be handling ux for such applications
- j2bax 6y ago
  Yeah no kidding. Hopefully people caught my sarcasm. This is an area where UX design is absolutely crucial.

deleted 6y ago

[deleted]

kbar13 6y ago

the instant availability of funds likely was a growth decision for better on boarding UX. imagine getting a referral from a friend who said hey get in on this stock, installing the app, and having to wait 2-5 business days for ACH to clear. guessing during normal operation this is an acceptable risk for robinhood and users, obviously this isn’t gonna fly when things go wild like the last couple of weeks

scsilver 6y ago
Imo The whole gamma squeeze was based on options writers not taking into account how quickly and army of new investors can leverage this instantly available capital.
- PhantomGremlin 6y ago
  The role of option writers is very much an under-reported part of this whole fiasco. Normally you want option writers to be able to provide liquidity by going naked short when selling calls. Obviously that fails when involving small companies with high short interest and hordes of "4chan found a Bloomberg Terminal" investors. I looked a little at GME during the week and I saw that the option market makers had significantly reduced their participation. I bet that they're also big losers. But that's what they do for a living, it's their own fault if they blew up selling calls naked. They knew the risks. Delta hedging doesn't work when a stock can move 100% in a single day.
cm2187 6y ago
Pretty much every broker does that when you buy stocks too. I think most securities settle T+2, which means that you are not the owner (and cash hasn't gone out of the door) until 2 business days after the transaction. But the broker will show your account debited immediately and will add the stock to your portfolio in the UI too. It's well intended but misleading.
- MattGaiser 6y ago
  https://www.fidelity.com/learning-center/trading-investing/trading/avoiding-cash-trading-violations https://www.fidelity.com/learning-center/trading-investing/t...

gruez 6y ago

>5) RH then "margin calls" all of the people who had money transfers pending at the time of GME purchase. Is there any evidence of this? The article seems to only say that some people got margin called, but didn't say whether those people were using "real" margin or was using the "instant deposit" margin.

kylecordes 6y ago
Right, there's probably no way to margin call people who have already initiated the transfer of the money. RH has to float it a few days for the ACH to complete.
- dylan604 6y ago
  Why in the world does ACH take so damn long to complete? Do the electrons move slower in the ACH network? I make a request to purchase, the funds availability in my account are verified, the withdrawl is requested, then, waiting, waiting, waiting. Why? This is the area I would love to see "distrupted". Force the banks to honor the requests in order they are received (not in the order they choose that is most lucrative to the bank). If a transfer request comes in for a value greater than my account has, decline the transfer.
  - astrange 6y ago
    It's largely artificial and controlled by the Fed; it can't really be disrupted since you can't replace the Fed (PayPal and Zelle haven't replaced ACH), but they have shaved off a day in recent years and plan to add actual realtime settlement in the next few years. In the meantime, the computers still work business hours and take off weekends for some reason. > Force the banks to honor the requests in order they are received (not in the order they choose that is most lucrative to the bank). Didn't this already happen?
    - seangrogg 6y ago
      > In the meantime, the computers still work business hours and take off weekends for some reason. They're just making sure they can avoid needing to pay their computers overtime when they get worker's rights. /s

dheera 6y ago

RH is free and doesn't charge commissions. This should be a BIG RED FLAG that you are the product and not the customer. In general, if you aren't paying, they have no interest in keeping you happy.

ghaff 6y ago
For regular purchases, most large brokerages don't charge commissions these days on most purchases. Not a particular fan of RH but the fact that they don't charge commissions isn't any more of a flag than in the case of Fidelity.
- suifbwish 6y ago
  Where do brokerage firms that don’t charge for trades or membership make their money from then?
  - ghaff 6y ago
    Interest on cash/float/loans, management fees on their own funds, "skim" off trades, other fees of various kinds, etc.
  - duemti 6y ago
    it is a red flag indeed. They route orders to market makers that profit from arbitrage (not exchanges), and other shady stuff.
deelowe 6y ago
Almost no one charges commission these days.
- FabHK 6y ago
  A bit like the forex shops at airports that sell you the pound for $1.47, and buy it for $1.27, but charge "no commission"...
  - 6y ago

vineyardmike 6y ago

It’s pretty obvious (at least to me when I signed up) that the “instant money transfer” means margin. Even if you don’t get the concept of “margin” specific to investing, you should get that you’re borrowing against the transfer when you use it. Edit: I just deposited more money into robinhood, and the screen says "your funds will be transfered in next several days... in meantime, we'll give you access to $X while you wait for the funds to clear" Also, the UI separates your cleared money, from the instant deposit money as 2 line items. It says that its not your money in the UI.

marcinzm 6y ago
In the age of the internet (well 30+ years into it even) thinking that digital funds can be transferred instantly seems a pretty sane assumption.
- ur-whale 6y ago
  It isn't. Settlement is complicated business. Complicated enough that it took the invention of Bitcoin to take it out of the bankers hands and move it to the digital realm. And even then, it was not instantaneous (10mn) until layer two solutions appeared. Thinking that "money can be transferred instantaneously because digital" is not a reasonable assumption.
  - fastball 6y ago
    In the UK bank transfers are instant.
    - ur-whale 6y ago
      They very likely aren't. They just appear to be to the retail crowd.
      - marcinzm 6y ago
        It seems to be in fact instant: https://en.wikipedia.org/wiki/Faster_Payments_Service https://en.wikipedia.org/wiki/Faster_Payments_Service

MattGaiser 6y ago

There are all sorts of rules that brokers generally abstract away: https://finance.zacks.com/tax-rules-use-proceeds-stock-sales-buy-new-stocks-8465.html https://finance.zacks.com/tax-rules-use-proceeds-stock-sales... https://www.fidelity.com/learning-center/trading-investing/trading/avoiding-cash-trading-violations https://www.fidelity.com/learning-center/trading-investing/t... My understanding is that you couldn't do day trading without a margin account.

mrits 6y ago
I have a margin account but E*Trade let me day trade for years without one. There were rules like you couldn't buy and sell the same stock in the same day but you also got hundreds of violations before they suspended this ability. So if you are more of a day-swing trader and not doing high volume it worked well enough for me.
- garmaine 6y ago
  The point is you are technically margin-trading when you do that. From the broker's perspective you are trading on margin until your prior trades settle.
  - evolve2k 6y ago
    As a onboarding hack I can see this as a great idea to help people get their first $100-$1000 on the market fast. But the chance of an eventual margin call is almost certain in the long run (as has happened here). It’s time to talk ethics in tech, this was a design decision to not unwind this once the user was embedded or otherwise clarify this upfront. Margin call risk totally must be disclosed and is legally required (in Australia where I am) to be disclosed by any investment professional you paid to setup this sort of arrangement. I’d be fairly confident the same applies to US investment advisers. It’s totally the sort of ‘feature’ that the user could have been advised of around say the 30 day mark. “We’ve set you up a margin account that’s valid for your first $1000, please now confirm if you’d like to continue to carry a margin call risk otherwise were converting you to a standard account.” It’s also super common for margin facilities to allow investors carrying the risk, 24-48 hours to contribute to retain the position, auto-selling out is a last resort.

downrightmike 6y ago

I have a RH, and yeah when you sign up they tell you what margin is and you can choose to not use it as it is riskier. As this is just a 'see what happens' use case for me, I didn't elect margin. And well this is what happens. The predatory part is just giving it out at all to low funds retail traders.

BoorishBears 6y ago
99% of the people who use RH could not use it if RH didn't give you "implicit margin". The "democratization" is centered around it And I mean if you want, ask RH and they'll downgrade to to a cash account... just be ready for T+2 and no options trading https://robinhood.com/us/en/support/articles/options-investing/ https://robinhood.com/us/en/support/articles/options-investi... > NOTE: If you start options trading in your Cash account, we’ll automatically upgrade you to an Instant account. If Robinhood only had covered options you'd be right back to: not supporting the way people are using it to enable all this. - In fact, imagine if they didn't do this, all the new people who tried to enter GME would have had to wait 2 days to enter, and much fewer people would have had access to options Ironically I actually think it might have stopped this dead in its tracks by damping the influx of cash
- kllrnohj 6y ago
  > And I mean if you want, ask RH and they'll downgrade to to a cash account... just be ready for T+2 and no options trading You can do options trading on a cash account. You can only do covered options, but honestly that's probably a good restriction for most.
  - hmaxwell 6y ago
    I think the way it works now is great, being able to go short on naked options with a proper margin maintenance is way smarter than restricting everyone to go long on options or only allow people to sell calls on covered options (which kind of defeats the purpose of a bearish position when you are required to hold the deliverables).

avlewis 6y ago

I really think Robinhood might go out of business before Gamestop.

VWWHFSfQ 6y ago
nah this whole thing has been great press for them despite the debacles
- Igelau 6y ago
  There is such thing as bad press. Every time they've shown up in headlines, I remember how happy I am that they don't have any of my money.

deleted 6y ago

[deleted]

ogre_codes 6y ago

> Ya... that seems pretty predatory in my opinion. I think Hanlon's Razor applies here: "never attribute to malice that which is adequately explained by stupidity" The more I see with this fiasco, the more I feel like RH management just made a platform with a bunch of shortcuts and didn't realize what the unintended consequences of a trading platform with zero friction margin accounts would be. Not absolving them of responsibility, and I've definitely see some places where their choices favor themselves over their users. But the situation is largely out of their control at this point and they are just trying to do damage control.

jliptzin 6y ago
Conspiracy theory: This entire GME squeeze was orchestrated by one/many of Robinhood’s competitors who spotted this weakness and knew exactly how to leverage the masses to exploit it and drive RH out of business.
- sidlls 6y ago
  Yeah, no. This is similar to Republican claims of election fraud: it's entirely plausible (and downright indefensible to not believe) that voting machines are subject to manipulation, but at the same time there's just an astounding lack of evidence any such manipulation exists.
  - bluGill 6y ago
    there clearly has been manipulation of some sort. However not anywhere near enough to turn the election. A couple dead people who voted here and there needs to be investigated, but 10 votes in a state don't change any results.
    - imwillofficial 6y ago
      What are your sources? I haven’t read that 10 fraudulent votes number anywhere. I did watch the video with the woman unpacking the suitcase full of ballots. That wasn’t her best day for sure.

thereare5lights 6y ago

Unless all those users faked their screenshots, it would seem that Robinhood is lying.

015a 6y ago

This is definitely one of those things that may all be somewhere within the bounds of the rules, and the SEC will allow it, as long as you don't fuck it up. A "don't ask don't tell" kind of situation when firms tread into the grey area between the black and white of strict rules. My boss always used to say "We don't have many rules, just don't be the reason why we have to create a rule". 4.5) Because of their insane overuse of margin to ease onboarding, their depository obligations begin bleeding beyond their ability to triage, putting the accounts of both their investors and clients at risk. 5) RH then "margin calls" all of the people who had money transfers pending at the time of GME purchase (in order to reduce the overall risk profile of the robinhood brokerage and to scrape back as much money as possible to cover their depository obligations which they, goto 1, screwed up themselves by offering way too much margin to clients who didn't know they were getting margin (or what it even is)) Over the past two days, Robinhood royally fucked it up, beyond anyone's wildest fears. If they were Chase or BofA or someone, I'd say they're systemic and will get by to survive another day. They're not. Robinhood is finished. If they somehow manage to meet their depository and net capital obligations over the next few trading days, and if they somehow manage to survive the large downturn in users the platform will experience after their actions this week, and if they survive the inevitable congressional hearing, they'll still have the SEC investigation to look forward to.

the_economist 6y ago
"survive the large downturn in users the platform will experience after their actions this week" Haven't they been number one in the app store all week: https://www.appannie.com/en/apps/ios/top/ https://www.appannie.com/en/apps/ios/top/
- laurent92 6y ago
  Those who made it #1 are the ones who want to create an account to participate to bankrupt a hedge fund. I say their next move can be revenge on Robinhood for, at the very least, entertaining the misunderstanding with their customers (="They sold my stock without an order from me" when they were effectively on margin and halfway legit).
- 6y ago

nrmitchi 6y ago

I completely agree with you right up until the end. Robinhood's entire product is built on a manipulative and predatory premise that making people feel comfortable "trading stocks", whether they fully understand what is happening under the hood, is a net positive. It was bound to blow up eventually, but I disagree with your assumption that this is obviously "market manipulation". If they had to take this action to save themselves, the alternative was worse. Robinhood would have [edit: potentially] gone under while holding all of their customer's stock, and I guess SPIC would have figured it out eventually? No one would have had the option to sell, and Robinhood going under would likely have had a much larger impact on the price of specific securities. I have *absolutely* no idea what would have happened if Robinhood wasn't able to settle trades that it had already made. I assume it would have been an absolute catastrophy. By that logic, Robinhood "manipulated the market" in a way that prevented GME stock from tanking. I would be very concerned here if Robinhood ends up going under for "market manipulation", with no reference to the extremely poor and predatory product decisions that set this up in the first place. We'll just have the next company pop up, promise to do "nothing illegal", and then set up the same house of cards.

bhk 6y ago
If they had to take this action to save themselves, they have already betrayed the trust of their customers. > Robinhood's entire product is built on a manipulative and predatory premise that making people feel comfortable "trading stocks", whether they fully understand what is happening under the hood, is a net positive. I think that people generally understand that when they buy stocks, those stocks may go up or down. There is no guarantee of making money. You take your chances. What they don't understand is that the brokerage can sell what they bought at the day's low price, because the account they funded with cold hard cash was termed a margin account. What they don't understand is that their brokerage might arbitrarily decide to prevent them from trading particular issues on a given day. What they don't understand is that, due to their broker's lack of financial prudence, that their broker may need to manipulate the market to their individual disadvantage "for the greater good".
- nrmitchi 6y ago

Quinner 6y ago

That's absolutely not true. You have to specifically opt-in to trading on margin, read disclosures, and have a minimum $2k balance. Instant deposit is not trading on margin, it's trading on deposits that you make that are instantly available in Robinhood but take a day or two to clear ACH. That's all made clear up front on the screens about Instant Deposit, not buried in T&C.

nrmitchi 6y ago
https://robinhood.com/us/en/support/articles/robinhood-accounts/ https://robinhood.com/us/en/support/articles/robinhood-accou... "When you sign up for a new account, you’ll automatically start with a Robinhood Instant account, *which is a margin account*." > it's trading on deposits that you make that are instantly available If it's made instantly available, it is being loaned to you from Robinhood, but that is... still margin. It may be interest free margin, but it's still margin. It is money that has not settled into your account yet. If it's not on margin, you can't use it until it's settled. Hell if you sell a stock and then immediately buy a new one, that is also margin, because, again, the funds have not settled into your account yet. If you want a Cash account (a non-margin account), you can downgrade, and "You won’t have access to instant deposits or instant settlements". The fact that you have to do this manually however is, in my opinion, predatory, and setting up a house of cards that will eventually fall over, because users won't understand what is actually happening. But the fact that it's predatory doesn't make it not true.
- Quinner 6y ago
  If you want to call that margin, it's margin with 100% collateral. It's not margin in any meaningful sense. It's like if you handed your broker a check and said you wanted to make buy a stock for the value of the check. Would the trade clear before the check? Sure. Is that margin? I really struggle to see how.
  - nrmitchi 6y ago
    > it's margin with 100% collateral Except the collateral hasn't settled yet, so you can't guarantee what could happen. > It's like if you handed your broker a check and said you wanted to make buy a stock for the value of the check. There are tons of things that could happen here. The check could bounce. Your bank could go under. The check could be fake. You could have stolen the check from someone else, and when they see it clear, they'll call their bank and the funds will be withdrawn. > Would the trade clear before the check? Sure. Is that margin? Yes, it is. The broker may choose to loan you the money short term with the assumption that the check will clear, but they don't have to. They could just refuse to make the trade until the funds clear. If they did choose to buy the stock for you, they would be accepting that risk. If your money doesn't clear, they will be stuck with the stock. If this was a share of VTI, with low volatility, they'd likely be fine with it. Even if the check didn't clear, they could just re-sell the stock. It's super unlikely to drastically check in value in the 2 days before the check clears. If this was a share of GME today, they are buying it for you for $350. There is a change that your check doesn't clear. There is a chance that tomorrow GME is worth $50. If both of those things happen, your broker would have paid $350 for a stock that they didn't want, and can only sell for $50, and be stuck holding a $300 loss. Ie, they have loaned you money (even if it's short term and with no interest), but if the account doesn't actually get funded, or a previous trade doesn't actually settle[0], they are left holding the bag, the same as if it was "traditional" margin. [0] This is unlikely, but it could happen for a variety of reasons. I believe this would correlate with much larger issues with the state of the financial system, and in that case would just start compounding issues (because if your trade doesn't settle, then chances are a whole bunch of trades don't settle, and your broker will be left holding the bag for all of them)

hamilyon2 6y ago

I honestly don't think so. Before getting into stock trading, I read about it for a couple of months. About how you can lose money on trading bonds, what is clearing and volatility, how taxes are paid and so, and so. The fact is, you certainly could lose money trading stock, and broker certainly can sell your shares without your permission (in my country). Especially if you are poor. But that is common knowledge. And people losing money on stock exchange, on forex, wherever is nothing interesting or new. Is this predatory behavior? Maybe. Almost no retail investor makes money doing risky trades on stock exchange. That is what those people did. Edit:spelling

torwayburger 6y ago
Inversely, they took a position exploiting pretty much exactly what you describe from a hedge fund, and the only reason it didn't work was that it got shut down by powers from above.

retube 6y ago

Cash equities settlement is t+2, as are most transactions in financial markets. This is just how the underlying plumbing of the markets work, nothing to do with robinhood. You have the illusion of instant trading, but under the hood there's a huge amount of boring settlement machinery. Incidently, this is no different to the experience of a big bank or hedge fund trader. Settlement risk is real, and institutions have entire risk management departments devoted to it (banks even need to capitalise for it, to cover precisely these types of scenarios)

chrisco255 6y ago
And yet people will still say they can't fathom a single possible use case for crypto. Tokenized, non-custodial securities on blockchain can't come fast enough.
- retube 6y ago
  With respect i disagree. T+2 is not because of technological limitations of traditional databases or trust issues. Instantaneous settlement is possible (for example in the UK we have instantaneous inter-bank transfers), but it is not desired. Having delayed settlement means you can net offsetting transactions, it means you can handle outages in the infrastructure, it means you can unwind and correct errors.
  - mpmpmpmp 6y ago
    Thank you for this. It's frustrating to hear people making comments who don't have the fundamental understanding of why/how the markets work and are just upset about not being able to join in on the melee and assume it's nefarious behavior. My POV is that it was obviously a risk RH took to not make it more clear what the behavior of people's accounts would be when market volatility is high. But I worked for a Commodity Risk Management Company on their custom derivatives platform and 90% of what we did was around properly valuing customer positions so we could make sure margin requirements were met. This was a huge deal to everyone involved because the counterparty risk was so high for our company.
  - 6y ago

anonytrary 6y ago

> 4) Investors believe they've outright purchased stock, because RH app shows the stock in their account, and money now gone (even though it's still pending the transfer). 5) RH then "margin calls" all of the people who had money transfers pending at the time of GME purchase. Wait, what? That is the first that I'm hearing of this. That's crazy. Even without doing all of this, Robinhood having the ability to unpredictably/arbitrarily decide when to disable/enable actions on stocks is extremely bad for the market. They disguise this as protecting their users, but you cannot expect to have freedom as an investor if you don't know when or if you will be able to make a trade because a stock "isn't allowed right now". Part of the problem is that Robinhood treats their user-base like children. Nobody wants to be protected from risky decisions or from themselves and you can't just do that to people. It is an insult and an unfair withholding of the right of risk and the means to make money from the little guy. That's the dumbest thing I have ever heard. Risk should be a right. Nobody should be able to force you to not take a risk. I understand that talking to someone off a bridge is a wonderful thing, but at the end of the day, that person is never withheld the right to jump.

emteycz 6y ago
They didn't decide actions on market, they pulled back their loan to the users which forced the positions to close, as with any other broker (others are transparent about it though). Not that I approve but that's a difference.
- anonytrary 6y ago
  No... they also put caps on how much stock you can buy for a particular symbol. They are basically controlling the volume and direction of trade for some of these symbols on their platform...
delaaxe 6y ago
In reality, every trade on every broker is settled 2 days later because that's how this archaic netting system works. People need to see instant updates so that's what every app shows them

throwaway4good 6y ago

The rules sound quite reasonable to me; Robin Hood is trying to protect itself from the extreme volatility in the wsb/reddit stocks and the higher level of collateral thus required. Running a brokerage is low margin business.

8ytecoder 6y ago

Under normal scenarios this works extremely well. Being able to trade immediately was a boon. Of course I knew that it was margin but the cover scenarios never even arose for the many years I used Robinhood. It was one of the many reasons I used them. (I don’t anymore for other reasons)

sgregnt 6y ago

This is tangential to RH, but nevertheless I think it's a related issue: For many years now I was wondering how exectly the ETF work and whether when I buy an ETF I can be 100% sure the issuer can follow through on their obligations? What mechanism are there in place to insure that ETF will not deviate from the underlying stocks it should represent? I found it difficult to understand the intricacies related to this question. Here is one example: Suppose I was holding ETF with GME stock in it, the ETF issuer might have decided he knows better and sell the stock expecting its price to drop in the future. Meanwhile the issue will attempt to "follow" the stock by other means. Ultimately is there a way to be sure the issuer will not fail, if GME beats all anticipated expectation the issue might fail to reflect the new GME price... What mechanism are there in place to insure that ETF will not deviate from the underlying stock?

stjohnswarts 6y ago

WSB has been trying to push their own version of truth to the media and people seem to be swallowing it whole; that robinhood is basically pure evil and just out to squash the dreams of the WSB geniuses who are trying to stick it to the man. They're really a bunch of whiners. Everything I've read has pointed at that RH has been stretched to their limits financially given their current business model.

jhabdas 6y ago

I don't think anywhere in their terms did it say users are not allowed to trade outside the US. But that didn't stop RH from freezing $800 in my account for a year after making 103% in a day on $VXX and other ETNs during a trip to Mexico in 2017. I eventually got my money back. But it took me a year.