7 ms·

This is not the first time RH has gone down during critical moments in the market. Yet their userbase grows and their users come back. They'll be fine.

by maest 6y ago

teddyfrozevelt 6y ago
Maybe it's stupid, but I could forgive the outages, maybe because I wasn't doing any time critical trades when they happened. But deliberately limiting trades on dozens of stocks is so far past the line for me that I'm leaving Robinhood as soon as I find another brokerage I like.
wutbrodo 6y ago
During the other times, was their the perception that they were screwing their users over due to pressure by large financial institutions? That's a pretty salient difference for their brand.
codesternews 6y ago
This time it is different. Previously they had glitches etc. This time they by choice restricted users which lead their users loose. Whole concept they broke. If any investor still uses robinhood they are stupid. Your money and stock is not safe with Robinhood. They can restrict you any time.
- ditonal 6y ago
  Totally right, and furthermore, Robinhood is facing some serious solvency issues. Their PR releases claiming this was clearing house related was already highly dubious, and is self-contradicting because they are blaming it on a liquidity issue while saying it's not a liquidity issue. But this is happening at the same time was mass account withdrawals/closures, and we're now learning this not only threatens their general solvency but ability to execute trades. This could easily cause a feedback loop that empties their accounts, at which point people are going to be unable to withdraw their cash which is goign to cause a bank run and drill the nails into their coffin even further. Healthy companies don't need to emergency borrow a billion dollars. If you have less than $250,000 on Robinhood, your account is FDIC insured so you'll eventually get your money back...but I think most people would prefer not to go through that process. Robinhood is on a death spiral and prudent financial advice is to move any assets you have off of it as soon as possible.
  - quercusa 6y ago
    FDIC is for banks. SIPC (of which RH is a member) is for brokerage houses. https://www.sipc.org/about-sipc/ https://www.sipc.org/about-sipc/
    - deleted 6y ago
      [deleted]
  - doanerock 6y ago
    "250,000 on Robinhood, your account is FDIC insured" That is only for the cash on hand, the securities are covered by SIPC.
  - JMTQp8lwXL 6y ago
    The solvency issue is the root cause leading me to leave Robinhood personally. The limitation on market orders was the symptom; the cause was a rotten core. This is the true reason why everyone should leave Robinhood. I do not want to deal with realizing FDIC/SIPC insurance preferably ever in my lifetime.
    - o-__-o 6y ago
      You dealt with it when you eg had a Wachovia bank account before they became Wells Fargo. You saw it happen en masse in 2008. FDIC guarantees funds to the bank. If the bank fails FDIC ensures YOU continue to access your account. If this means taking the bank into receivership and changing owners so be it. You can go to the FDIC website to see what banks have failed. Many do over the course of a year but the account owners are never at risk outside of the insurance amount on a single deposit account. I hope you don’t keep more than 250,000 in an fdic insured account without additional insurance (which is silly because you could just open another account at the institution for additional coverage)
  - sgregnt 6y ago
    This is tangential to RH, but never the less 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?
- tptacek 6y ago
  Your claim that RH restricted users by choice seems false. RH is required by NSCC/DTCC rules to post collateral for trades in the process of settlement. As a result of volatility, the collateral requirements for meme stocks shot up from something like single digits to something perhaps approaching 100%. Robinhood was apparently forced to draw down a $600MM line of credit just to cover the trades it had already allowed.
  - capableweb 6y ago
    Sounds like Robinhood was setup to fail from the beginning, if so. If you make it as easy as possible to do trades but then start getting "rate-limited" essentially, it was never gonna scale in the first place. Gonna be interesting to see what gets to replace Robinhood for easy and reliable trades in the future.
    - tptacek 6y ago
      Don't let me come across like I'm defending Robinhood, which is an online casino dressed up to look like an investment application.
  - inkaudio 6y ago
    This is for stock sales which they did not restrict. Robinhood stopped the purchase of stock which does not require a collateral because the money is coming directly from the users cash balance. Don’t believe whatever they say, RH action was specifically to stop the short squeeze.
    - jonp888 6y ago
      This is just not true. They do have to post collateral for purchases, and the customer's own money cannot be used as the collateral.
      - skedaddle 6y ago
        Just curious -- why not?
deleted 6y ago
[deleted]
deleted 6y ago
[deleted]
jb775 6y ago
This wasn't "going down", it was active blocking of specific stocks because RH exposed themselves to massive risk by assuming the hedge funds they were pimping their customers out to would never be swiftly bankrupted. RH was essentially letting their users pay full price for a stock, then lending that stock to hedge funds so they could use it against the actual stock owner by selling it short. Since the borrowed stock has already been resold (the stock the HF didn't own to begin with), now the question is if the HF can even afford to buy them all back. This is why the entire market dropped the other day, because HFs were selling off other positions to come up with the money. Sell offs could get a lot worse considering $GME is still currently shorted over 100%. If the govt steps in to save the hedge funds at the expense of millions of average Joe's, or if the hedge funds pull some sort of bankruptcy loophole card resulting in the average Joe's holding the bag while they continue on, we could see people revolt against the entire financial system as we know it.

This is not the first time RH has gone down during critical moments in the market. Yet their userbase grows and their users come back. They'll be fine.

by maest 6y ago

This is not the first time RH has gone down during critical moments in the market. Yet their userbase grows and their users come back. They'll be fine.

teddyfrozevelt 6y ago

Maybe it's stupid, but I could forgive the outages, maybe because I wasn't doing any time critical trades when they happened. But deliberately limiting trades on dozens of stocks is so far past the line for me that I'm leaving Robinhood as soon as I find another brokerage I like.

wutbrodo 6y ago

During the other times, was their the perception that they were screwing their users over due to pressure by large financial institutions? That's a pretty salient difference for their brand.

codesternews 6y ago

This time it is different. Previously they had glitches etc. This time they by choice restricted users which lead their users loose. Whole concept they broke. If any investor still uses robinhood they are stupid. Your money and stock is not safe with Robinhood. They can restrict you any time.

ditonal 6y ago
Totally right, and furthermore, Robinhood is facing some serious solvency issues. Their PR releases claiming this was clearing house related was already highly dubious, and is self-contradicting because they are blaming it on a liquidity issue while saying it's not a liquidity issue. But this is happening at the same time was mass account withdrawals/closures, and we're now learning this not only threatens their general solvency but ability to execute trades. This could easily cause a feedback loop that empties their accounts, at which point people are going to be unable to withdraw their cash which is goign to cause a bank run and drill the nails into their coffin even further. Healthy companies don't need to emergency borrow a billion dollars. If you have less than $250,000 on Robinhood, your account is FDIC insured so you'll eventually get your money back...but I think most people would prefer not to go through that process. Robinhood is on a death spiral and prudent financial advice is to move any assets you have off of it as soon as possible.
- quercusa 6y ago
  FDIC is for banks. SIPC (of which RH is a member) is for brokerage houses. https://www.sipc.org/about-sipc/ https://www.sipc.org/about-sipc/
  - deleted 6y ago
    [deleted]
- doanerock 6y ago
  "250,000 on Robinhood, your account is FDIC insured" That is only for the cash on hand, the securities are covered by SIPC.
- JMTQp8lwXL 6y ago
  The solvency issue is the root cause leading me to leave Robinhood personally. The limitation on market orders was the symptom; the cause was a rotten core. This is the true reason why everyone should leave Robinhood. I do not want to deal with realizing FDIC/SIPC insurance preferably ever in my lifetime.
  - o-__-o 6y ago
    You dealt with it when you eg had a Wachovia bank account before they became Wells Fargo. You saw it happen en masse in 2008. FDIC guarantees funds to the bank. If the bank fails FDIC ensures YOU continue to access your account. If this means taking the bank into receivership and changing owners so be it. You can go to the FDIC website to see what banks have failed. Many do over the course of a year but the account owners are never at risk outside of the insurance amount on a single deposit account. I hope you don’t keep more than 250,000 in an fdic insured account without additional insurance (which is silly because you could just open another account at the institution for additional coverage)
- sgregnt 6y ago
  This is tangential to RH, but never the less 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?
tptacek 6y ago
Your claim that RH restricted users by choice seems false. RH is required by NSCC/DTCC rules to post collateral for trades in the process of settlement. As a result of volatility, the collateral requirements for meme stocks shot up from something like single digits to something perhaps approaching 100%. Robinhood was apparently forced to draw down a $600MM line of credit just to cover the trades it had already allowed.
- capableweb 6y ago
  Sounds like Robinhood was setup to fail from the beginning, if so. If you make it as easy as possible to do trades but then start getting "rate-limited" essentially, it was never gonna scale in the first place. Gonna be interesting to see what gets to replace Robinhood for easy and reliable trades in the future.
  - tptacek 6y ago
    Don't let me come across like I'm defending Robinhood, which is an online casino dressed up to look like an investment application.
- inkaudio 6y ago
  This is for stock sales which they did not restrict. Robinhood stopped the purchase of stock which does not require a collateral because the money is coming directly from the users cash balance. Don’t believe whatever they say, RH action was specifically to stop the short squeeze.
  - jonp888 6y ago
    This is just not true. They do have to post collateral for purchases, and the customer's own money cannot be used as the collateral.
    - skedaddle 6y ago
      Just curious -- why not?

deleted 6y ago

[deleted]

deleted 6y ago

[deleted]

jb775 6y ago

This wasn't "going down", it was active blocking of specific stocks because RH exposed themselves to massive risk by assuming the hedge funds they were pimping their customers out to would never be swiftly bankrupted. RH was essentially letting their users pay full price for a stock, then lending that stock to hedge funds so they could use it against the actual stock owner by selling it short. Since the borrowed stock has already been resold (the stock the HF didn't own to begin with), now the question is if the HF can even afford to buy them all back. This is why the entire market dropped the other day, because HFs were selling off other positions to come up with the money. Sell offs could get a lot worse considering $GME is still currently shorted over 100%. If the govt steps in to save the hedge funds at the expense of millions of average Joe's, or if the hedge funds pull some sort of bankruptcy loophole card resulting in the average Joe's holding the bag while they continue on, we could see people revolt against the entire financial system as we know it.