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It was not obvious to me. What my perception was, was that you were being loaned money against the transfer you were sending in. It was not clear at all to me

It was not obvious to me. What my perception was, was that you were being loaned money against the transfer you were sending in. It was not clear at all to me that it was a generic margin account. Because, among other things, I consider margin trading to be a higher risk activity than I care to engage in; if I had known that I was signing up for a margin account, I would have not signed up at all. That said, I've definitely been edu-ma-cated on this, and I"ll be reading brokerage ToS more carefully from now on.

Tenoke 6y ago
>What my perception was, was that you were being loaned money against the transfer you were sending in That is margin trading though. It sounds like you thought only some trading on a loan counts as margin per definition but you knew you weren't trading with your actual money but a loan which is the important part.
- kllrnohj 6y ago
  https://www.investopedia.com/terms/m/margin.asp https://www.investopedia.com/terms/m/margin.asp margin trading overwhelmingly refers to paying a percentage as a collateral, not a stop-gap loan to cover ACH transfer delays. Yes you have to have a margin account to trade with immediately deposited funds (thanks ACH), but that's not the typical usage of the phrase and as such isn't what you'll find being described when you look up the term. Particularly since you can trade with unsettled funds using a cash account in some circumstances, see situation #3 here: https://www.sec.gov/oiea/investor-alerts-and-bulletins/ib_cashaccounts https://www.sec.gov/oiea/investor-alerts-and-bulletins/ib_ca...
- pnathan 6y ago
  Ah - I have generally understood it as working on a percentage of the trade; being part and parcel of a leveraged strategy. It's one thing to loan me $100 when we have shaken hands and contractually already agreed that $100 is on its way. It's another thing to assume control of that $100 when the $100 already agreed to is on its way.
  - btilly 6y ago
    You do not understand the contract. The contract with you says that if it settles, you get that money. The contract on the stock market says that it is supposed to settle. But a non-negligible percentage of the time, participants in the stock market do not make good on their contracts. Maybe they are a day late. Or the trade is reversed and the money or stock for your side comes back to you. You will get whatever happens while executing the trade, but it might not be what you expected to get. In a cash account, the broker takes your money/stock and you live with the inconvenience. In a margin account, the broker is effectively lending you money to cover unsettled trades and is taking on that inconvenience instead. Given the high volume of trades going through a brokerage relative to the wealth of the brokerage, that inconvenience can become a real operational risk. How real? Well, Robinhood just had to get an emergency loan for a billion dollars to cover trades that are open and have not settled. Why? Your ability to execute the trades that you made depends on various counterparties all doing what they said that they would, when they said that they would do it. But if they don't, and you prove unable, Robinhood is still legally obligated to make sure that they are able to settle all of their contracts on the stock market which they took on on your behalf.
    - pnathan 6y ago
      > You do not understand the contract. that, heh, has been made apparent. Fortunately not at a loss to me.
kortilla 6y ago
You’re confusing margin trading with leveraging. Margin trading is just using loaned money to execute the trade. The “dangerous” part of margin trading is taking a loan for more than you have equivalent cash collateral of.
wbl 6y ago
Stick it all in the S&P 500 set up autoinvest and call it a day.
- pnathan 6y ago
  :) I have, approximately, 99.7% of my invested money in vanguard funds. The other 0.3% goes into the fund for doing trading. To be honest, it's probable that I should adjust my risk tolerance to 5% ultra-low risk assets and 5% ultra-high risk; the current state of asset allocation is overly correlated with US large cap corporations.
Dma54rhs 6y ago
The whole innovation of RobinHood stood for is to abstract that away from you so you can instantly start trading and continue when you sell stocks. In the end we get to the same point why a lot of things when it comes to trading are made difficult or impossible after big fiasco and collapses - you can't trust the retail not saying I didn't know better when they lose it all.

Tenoke 6y ago

>What my perception was, was that you were being loaned money against the transfer you were sending in That is margin trading though. It sounds like you thought only some trading on a loan counts as margin per definition but you knew you weren't trading with your actual money but a loan which is the important part.

kllrnohj 6y ago
https://www.investopedia.com/terms/m/margin.asp https://www.investopedia.com/terms/m/margin.asp margin trading overwhelmingly refers to paying a percentage as a collateral, not a stop-gap loan to cover ACH transfer delays. Yes you have to have a margin account to trade with immediately deposited funds (thanks ACH), but that's not the typical usage of the phrase and as such isn't what you'll find being described when you look up the term. Particularly since you can trade with unsettled funds using a cash account in some circumstances, see situation #3 here: https://www.sec.gov/oiea/investor-alerts-and-bulletins/ib_cashaccounts https://www.sec.gov/oiea/investor-alerts-and-bulletins/ib_ca...
pnathan 6y ago
Ah - I have generally understood it as working on a percentage of the trade; being part and parcel of a leveraged strategy. It's one thing to loan me $100 when we have shaken hands and contractually already agreed that $100 is on its way. It's another thing to assume control of that $100 when the $100 already agreed to is on its way.
- btilly 6y ago
  You do not understand the contract. The contract with you says that if it settles, you get that money. The contract on the stock market says that it is supposed to settle. But a non-negligible percentage of the time, participants in the stock market do not make good on their contracts. Maybe they are a day late. Or the trade is reversed and the money or stock for your side comes back to you. You will get whatever happens while executing the trade, but it might not be what you expected to get. In a cash account, the broker takes your money/stock and you live with the inconvenience. In a margin account, the broker is effectively lending you money to cover unsettled trades and is taking on that inconvenience instead. Given the high volume of trades going through a brokerage relative to the wealth of the brokerage, that inconvenience can become a real operational risk. How real? Well, Robinhood just had to get an emergency loan for a billion dollars to cover trades that are open and have not settled. Why? Your ability to execute the trades that you made depends on various counterparties all doing what they said that they would, when they said that they would do it. But if they don't, and you prove unable, Robinhood is still legally obligated to make sure that they are able to settle all of their contracts on the stock market which they took on on your behalf.
  - pnathan 6y ago
    > You do not understand the contract. that, heh, has been made apparent. Fortunately not at a loss to me.

kortilla 6y ago

You’re confusing margin trading with leveraging. Margin trading is just using loaned money to execute the trade. The “dangerous” part of margin trading is taking a loan for more than you have equivalent cash collateral of.

wbl 6y ago

Stick it all in the S&P 500 set up autoinvest and call it a day.

pnathan 6y ago
:) I have, approximately, 99.7% of my invested money in vanguard funds. The other 0.3% goes into the fund for doing trading. To be honest, it's probable that I should adjust my risk tolerance to 5% ultra-low risk assets and 5% ultra-high risk; the current state of asset allocation is overly correlated with US large cap corporations.

Dma54rhs 6y ago

The whole innovation of RobinHood stood for is to abstract that away from you so you can instantly start trading and continue when you sell stocks. In the end we get to the same point why a lot of things when it comes to trading are made difficult or impossible after big fiasco and collapses - you can't trust the retail not saying I didn't know better when they lose it all.