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This is robinhood's fault. He's not wrong that instant (or same day) settlement would be better than T+2, but there were plenty of other brokers that did not r

This is robinhood's fault. He's not wrong that instant (or same day) settlement would be better than T+2, but there were plenty of other brokers that did not restrict trading. This was a liquidity issue for robinhood. This is a risk you run being a "cool startup that moves fast and breaks things" in the arena of securities trading. Additionally, Some of the bugs they've experienced are absurd in the context of a broker that potentially houses people's entire liquid net worth, including a bug that reversed the direction of trades - "oh you meant to sell those shares? whoops!"[0]. Why choose robinhood when the alternatives include some of the most well capitalized institutions in the world, eg JP Morgan or Bank of America Merrill Lynch - they have literal trillions in assets each and neither has these issues. I appreciate that robinhood pioneered zero commission trades, but that has been largely adopted by the industry at this point. From my standpoint I only see risks versus their peers and precisely zero benefits. I implore everyone here to stay far away from robinhood. [0] https://www.nytimes.com/2021/02/02/technology/robinhood-ceo-vlad-tenev.html https://www.nytimes.com/2021/02/02/technology/robinhood-ceo-...

notsureaboutpg 6y ago
Yeah, you can open a Fidelity account with no minimum and get commission free trades and their app is great. What advantage does Robinhood have in comparison? Outages and low liquidity?
AmericanChopper 6y ago
I agree that this is robinhoods fault, and that they have been deceptive in their PR about this, and that their UX workflows are misleading about what’s actually happening... But, plenty of other brokers had the same issue. Including Merrill for instance. I would say that the more concerning issue that this has highlighted is how this part of the system gives large institutions greater access to markets than retail investors get. Addressing a systemic flaw like this seems like the best possible thing that could come out of this controversy.
pokot0 6y ago
They are diverting the attention from their core problem: lack of transparency. I had a RH account for years and I didn't know it was a margin account (be sure: I did not signup for their "margin" service). All RH account are margin accounts even if they feel like cash accounts (but with T+0 settlement). This is what triggered their cash problems and what drives people crazy now: a user feels they gave them 100$ to buy 100$ of stocks, while what happens is that you get a loan and they buy some form of stock in their name while committing to you for the value of one stock. Robinhood is the facebook of finance. I moved my money out of them.
- astrange 6y ago
  This has nothing to do with being a margin account, it's DTCC requirements related to wanting to buy the same stock everyone else at the same broker also wants to buy.
  - pokot0 6y ago
    My understanding is that it does. One example (there's more like the instant deposit): when you buy a stock with money from another sale not yet settled, you are basically using margin (a loan) and thus RH have cash requirements which are a % of the cost of the trade to be settled. If you don't allow that, and only let people trade on a cash basis after the trades have been settled, you effectively have 100% of the money you need to settle the trades you closed.
    - kasey_junk 6y ago
      Thats true but do any brokers do that in their apps? Neither my Vanguard nor my Fidelity UI make it obvious when i’m using settled vs non-settled funds.
      - pokot0 6y ago
        Yes, I never used any of those but it looks like they followed suit on the RH success and implemented something similar. I had an Interactive Brokers account for years and there the distinction is very clear. A cash account just can't use money before they are settled (not different from many bank accounts show you two balance, one available the other one including pending transactions). To upgrade to a margin account you need to go through a rather long process of documents and signatures.
paxys 6y ago
> Why choose robinhood when the alternatives include some of the most well capitalized institutions in the world The biggest reason is that none of those world class institutions can actually build a functioning smartphone app
- dharmab 6y ago
  I've been mostly happy with the Charles Schwab app. They also don't charge any fees.
  - whimsicalism 6y ago
    I have not been. It seems to constantly forget my fingerprint. Nor does it have a particularly nice UI, unlike Robinhood. That might be a plus (doesn't gamify it) but it is an inferior UI.
- stouset 6y ago
  Vanguard’s app works fine for me. Sure it’s not gamified or meme-ready but maybe “investing your life savings” as a category shouldn’t be?
  - JohnJamesRambo 6y ago
    They need a Game Over screen for when you are liquidated.
  - kbar13 6y ago
    i have a vanguard account with most of my investments, with like 10% in robinhood for gambling. the way i think about it is vanguard works fine (theres some bugs but not end of the world). but it is not optimized for timed trades. it works well enough for me to put in a big chunk of money on a recurring basis or liquidate funds for use elsewhere. robinhood allows me to easily trade off of market emotion or do options trading. they serve two very different markets. if i tried to trade options using vanguard i'd probably want to throw my phone against the wall.
deleted 6y ago
[deleted]
Negitivefrags 6y ago
> This was a liquidity issue for robinhood. The only reason robinhood has liquidity issues is because of T+2 settlement. I mean why should a broker app need to have liquidity at all. Why restrict the ability to make this type of business to companies with a lot of capital.
Miner49er 6y ago
I think this is jumping the gun. Robinhood takes some fault yes, but why are people ignoring the DTCC/clearinghouses role in this? It seems they raised deposit requirements potentially more than was standard. This needs to be investigated. WeBull's CEO claimed their clearinghouse told them to stop selling these securities (no mention of deposit requirements). If they really weren't even given an option to deposit more, that seems to me to be an abuse of power by the clearinghouse. Finally, was the DTCC not having the long side cover the risk on the short side? It seems to me, the vast majority of the risk was on the shorts. The short side seemed to be made up of mostly large hedge funds, so if one went down, it would have been extremely difficult for the DTCC to front the cash on all of their trades, and of course shorting has infinite risk. The long side was finite, was distributed among multiple brokers and then even more distributed among retail investors. It seems like the risk was low there.
- JumpCrisscross 6y ago
  > they raised deposit requirements potentially more than was standard What is your source for this? DTCC collateral requirements are calculated using, more or less, a fixed, predictable formula. And the DTCC isn't the ultimate creditor in these arrangements. They are drawing on lines of credit from banks, who are ultimately taking the credit risk of the collateral being insufficient for settlement.
  - Miner49er 6y ago
    Not completely, they have the right to add charges. Take a look at this tweet: https://mobile.twitter.com/KralcTrebor/status/1355175395642003456 https://mobile.twitter.com/KralcTrebor/status/13551753956420... It seems that they used this right by the fact that Robinhood was able to negotiate their deposit [0]. The DTCC demanded $3 billion. Robinhood negotiated down to $1.4 billion. If done by the formula, how is this possible? [0]: https://www.cnbc.com/2021/02/01/elon-musk-on-clubhouse-robinhood-ceo-explains-trading-restrictions.html https://www.cnbc.com/2021/02/01/elon-musk-on-clubhouse-robin...
    - JumpCrisscross 6y ago
nprz 6y ago
Zero commission trade is actually bullshit anyway. You end up losing more from inferior execution time than you would if you just paid the $5 per trade. Robin Hood also lied to users about this and ended up paying a $65 million fine[0]. [0]https://www.sec.gov/news/press-release/2020-321 https://www.sec.gov/news/press-release/2020-321
- wtf_is_up 6y ago
  How is this possible when I use limit orders? (not a robinhood user btw, but pretend I am)
  - justinsaccount 6y ago
    from screenshots I have seen lately, I'd bet that at least 20% of RH users have no idea what a limit order is.
    - deleted 6y ago
      [deleted]
  - TopInvestor 6y ago
    The general recommendation is never use limit orders - do not reveal your intention to the other side.
    - kasey_junk 6y ago
      This is terrible advice. if your slippage risk is such that you aren’t protected by NBBO you have absolutely no business on a retail broker of any sort. Meanwhile limit orders minimizes the most likely risk a retail trader has to overcome. Either you don’t understand the advice you were given, you were duped or you are trying to be duplicitous. In any case, terrible advice to be repeating in the context of retail trades.
      - TopInvestor 6y ago
humanlion87 6y ago
If companies like Robinhood don't come along, how do you think disruption in the financial market will happen? If we always go back to the existing players, rate of innovation will be so slow (especially in the financial market). And it's obvious that startups will not have the same amount of assets that century old companies have. But JPMorgan or BofA did not earn their trillions overnight. In fact, we can even say they have screwed over more people than Robinhood has. I am not trying to say what Robinhood did was correct or that they have not done any mistakes. I am just saying that I am glad that companies like Robinhood exist because otherwise the entrenched players would have never taken any steps to innovate.
- tmotwu 6y ago
  I agree with your sentiment, but for people who have used RH for a while, this is basically par for the course as far as RH support/PR goes. I'm surprised people haven't dumped them in the past for their reliability issues, and they shouldn't get a pass for this event either. For instance, Amazon wasn't the first e-commerce or compute resource provider either. Their competency and dedication to customers have put them ten steps ahead.
- jabbany 6y ago
  I don't think that the OP is arguing for "always" sticking to entrenched players, but rather for people to face the reality that the agility of startups come with drawbacks in their service (even though it's often not apparent). It all comes down to making informed decisions. If you're just using RH for "playing around" with some surplus money, this lack of liquidity shouldn't be as important for you (as compared to, e.g., the ease of use, or low fees...). However, if you're using RH in a "serious" capacity, this (reliability) should definitely be something to seriously consider, since you may not have the guarantees that you can take for granted with traditional players. The true problem with the RH situation is the lack of transparency throughout. It really does no good (and comes off as very "slimy") if third parties have to expose their business model or why they're having issues. A little transparency would have gone a long way for people to be sympathetic to the startup. But then again, I guess that harms the "magic" factor of a startup.
- totalZero 6y ago
stinky613 6y ago
Completely agree; Robinhood seems to give us a new reason to distrust them each week. The guy who allowed his service to store passwords as plaintext[1] says “There is no reason why the greatest financial system the world has ever seen cannot settle trades in real time.” -- pardon my fucking skepticism of the deep technical knowledge he must possess to make such a bold assertion [1] https://techcrunch.com/2019/07/24/robinhood-stored-passwords-in-plaintext-so-change-yours-now/ https://techcrunch.com/2019/07/24/robinhood-stored-passwords...
bumby 6y ago
From your link: “That same week, Robinhood released software that erroneously reversed the direction of customer trades, which meant that a bet on a stock going up was turned into a bet that it would go down. Mr. Tenev oversaw technology. Technological issues continued piling up. In 2019, customers discovered that Robinhood’s software accidentally allowed them to borrow almost infinite amounts of money to multiply their stock bets. Last March, as the pandemic hit the United States and the stock market gyrated wildly, Robinhood’s app seized up for almost two days, leading some customers to lose more than $1 million.” I like disruptive businesses. But sometimes I think SV fetishizes the “move fast and break things” mantra without understanding that it may sound cool without appropriately acknowledging the risk it brings. I’m sometimes labeled as a codger but it makes me cringe when people espouse that attitude on projects that can ruin someone’s livelihood let alone on safety critical code that can end someone’s life

notsureaboutpg 6y ago

Yeah, you can open a Fidelity account with no minimum and get commission free trades and their app is great. What advantage does Robinhood have in comparison? Outages and low liquidity?

AmericanChopper 6y ago

I agree that this is robinhoods fault, and that they have been deceptive in their PR about this, and that their UX workflows are misleading about what’s actually happening... But, plenty of other brokers had the same issue. Including Merrill for instance. I would say that the more concerning issue that this has highlighted is how this part of the system gives large institutions greater access to markets than retail investors get. Addressing a systemic flaw like this seems like the best possible thing that could come out of this controversy.

pokot0 6y ago

They are diverting the attention from their core problem: lack of transparency. I had a RH account for years and I didn't know it was a margin account (be sure: I did not signup for their "margin" service). All RH account are margin accounts even if they feel like cash accounts (but with T+0 settlement). This is what triggered their cash problems and what drives people crazy now: a user feels they gave them 100$ to buy 100$ of stocks, while what happens is that you get a loan and they buy some form of stock in their name while committing to you for the value of one stock. Robinhood is the facebook of finance. I moved my money out of them.

astrange 6y ago
This has nothing to do with being a margin account, it's DTCC requirements related to wanting to buy the same stock everyone else at the same broker also wants to buy.
- pokot0 6y ago
  My understanding is that it does. One example (there's more like the instant deposit): when you buy a stock with money from another sale not yet settled, you are basically using margin (a loan) and thus RH have cash requirements which are a % of the cost of the trade to be settled. If you don't allow that, and only let people trade on a cash basis after the trades have been settled, you effectively have 100% of the money you need to settle the trades you closed.
  - kasey_junk 6y ago
    Thats true but do any brokers do that in their apps? Neither my Vanguard nor my Fidelity UI make it obvious when i’m using settled vs non-settled funds.
    - pokot0 6y ago
      Yes, I never used any of those but it looks like they followed suit on the RH success and implemented something similar. I had an Interactive Brokers account for years and there the distinction is very clear. A cash account just can't use money before they are settled (not different from many bank accounts show you two balance, one available the other one including pending transactions). To upgrade to a margin account you need to go through a rather long process of documents and signatures.

paxys 6y ago

> Why choose robinhood when the alternatives include some of the most well capitalized institutions in the world The biggest reason is that none of those world class institutions can actually build a functioning smartphone app

dharmab 6y ago
I've been mostly happy with the Charles Schwab app. They also don't charge any fees.
- whimsicalism 6y ago
  I have not been. It seems to constantly forget my fingerprint. Nor does it have a particularly nice UI, unlike Robinhood. That might be a plus (doesn't gamify it) but it is an inferior UI.
stouset 6y ago
Vanguard’s app works fine for me. Sure it’s not gamified or meme-ready but maybe “investing your life savings” as a category shouldn’t be?
- JohnJamesRambo 6y ago
  They need a Game Over screen for when you are liquidated.
- kbar13 6y ago
  i have a vanguard account with most of my investments, with like 10% in robinhood for gambling. the way i think about it is vanguard works fine (theres some bugs but not end of the world). but it is not optimized for timed trades. it works well enough for me to put in a big chunk of money on a recurring basis or liquidate funds for use elsewhere. robinhood allows me to easily trade off of market emotion or do options trading. they serve two very different markets. if i tried to trade options using vanguard i'd probably want to throw my phone against the wall.

deleted 6y ago

[deleted]

Negitivefrags 6y ago

> This was a liquidity issue for robinhood. The only reason robinhood has liquidity issues is because of T+2 settlement. I mean why should a broker app need to have liquidity at all. Why restrict the ability to make this type of business to companies with a lot of capital.

Miner49er 6y ago

I think this is jumping the gun. Robinhood takes some fault yes, but why are people ignoring the DTCC/clearinghouses role in this? It seems they raised deposit requirements potentially more than was standard. This needs to be investigated. WeBull's CEO claimed their clearinghouse told them to stop selling these securities (no mention of deposit requirements). If they really weren't even given an option to deposit more, that seems to me to be an abuse of power by the clearinghouse. Finally, was the DTCC not having the long side cover the risk on the short side? It seems to me, the vast majority of the risk was on the shorts. The short side seemed to be made up of mostly large hedge funds, so if one went down, it would have been extremely difficult for the DTCC to front the cash on all of their trades, and of course shorting has infinite risk. The long side was finite, was distributed among multiple brokers and then even more distributed among retail investors. It seems like the risk was low there.

JumpCrisscross 6y ago
> they raised deposit requirements potentially more than was standard What is your source for this? DTCC collateral requirements are calculated using, more or less, a fixed, predictable formula. And the DTCC isn't the ultimate creditor in these arrangements. They are drawing on lines of credit from banks, who are ultimately taking the credit risk of the collateral being insufficient for settlement.
- Miner49er 6y ago
  Not completely, they have the right to add charges. Take a look at this tweet: https://mobile.twitter.com/KralcTrebor/status/1355175395642003456 https://mobile.twitter.com/KralcTrebor/status/13551753956420... It seems that they used this right by the fact that Robinhood was able to negotiate their deposit [0]. The DTCC demanded $3 billion. Robinhood negotiated down to $1.4 billion. If done by the formula, how is this possible? [0]: https://www.cnbc.com/2021/02/01/elon-musk-on-clubhouse-robinhood-ceo-explains-trading-restrictions.html https://www.cnbc.com/2021/02/01/elon-musk-on-clubhouse-robin...
  - JumpCrisscross 6y ago

nprz 6y ago

Zero commission trade is actually bullshit anyway. You end up losing more from inferior execution time than you would if you just paid the $5 per trade. Robin Hood also lied to users about this and ended up paying a $65 million fine[0]. [0]https://www.sec.gov/news/press-release/2020-321 https://www.sec.gov/news/press-release/2020-321

wtf_is_up 6y ago
How is this possible when I use limit orders? (not a robinhood user btw, but pretend I am)
- justinsaccount 6y ago
  from screenshots I have seen lately, I'd bet that at least 20% of RH users have no idea what a limit order is.
  - deleted 6y ago
    [deleted]
- TopInvestor 6y ago
  The general recommendation is never use limit orders - do not reveal your intention to the other side.
  - kasey_junk 6y ago
    This is terrible advice. if your slippage risk is such that you aren’t protected by NBBO you have absolutely no business on a retail broker of any sort. Meanwhile limit orders minimizes the most likely risk a retail trader has to overcome. Either you don’t understand the advice you were given, you were duped or you are trying to be duplicitous. In any case, terrible advice to be repeating in the context of retail trades.
    - TopInvestor 6y ago

humanlion87 6y ago

If companies like Robinhood don't come along, how do you think disruption in the financial market will happen? If we always go back to the existing players, rate of innovation will be so slow (especially in the financial market). And it's obvious that startups will not have the same amount of assets that century old companies have. But JPMorgan or BofA did not earn their trillions overnight. In fact, we can even say they have screwed over more people than Robinhood has. I am not trying to say what Robinhood did was correct or that they have not done any mistakes. I am just saying that I am glad that companies like Robinhood exist because otherwise the entrenched players would have never taken any steps to innovate.

tmotwu 6y ago
I agree with your sentiment, but for people who have used RH for a while, this is basically par for the course as far as RH support/PR goes. I'm surprised people haven't dumped them in the past for their reliability issues, and they shouldn't get a pass for this event either. For instance, Amazon wasn't the first e-commerce or compute resource provider either. Their competency and dedication to customers have put them ten steps ahead.
jabbany 6y ago
I don't think that the OP is arguing for "always" sticking to entrenched players, but rather for people to face the reality that the agility of startups come with drawbacks in their service (even though it's often not apparent). It all comes down to making informed decisions. If you're just using RH for "playing around" with some surplus money, this lack of liquidity shouldn't be as important for you (as compared to, e.g., the ease of use, or low fees...). However, if you're using RH in a "serious" capacity, this (reliability) should definitely be something to seriously consider, since you may not have the guarantees that you can take for granted with traditional players. The true problem with the RH situation is the lack of transparency throughout. It really does no good (and comes off as very "slimy") if third parties have to expose their business model or why they're having issues. A little transparency would have gone a long way for people to be sympathetic to the startup. But then again, I guess that harms the "magic" factor of a startup.
totalZero 6y ago

stinky613 6y ago

Completely agree; Robinhood seems to give us a new reason to distrust them each week. The guy who allowed his service to store passwords as plaintext[1] says “There is no reason why the greatest financial system the world has ever seen cannot settle trades in real time.” -- pardon my fucking skepticism of the deep technical knowledge he must possess to make such a bold assertion [1] https://techcrunch.com/2019/07/24/robinhood-stored-passwords-in-plaintext-so-change-yours-now/ https://techcrunch.com/2019/07/24/robinhood-stored-passwords...

bumby 6y ago

From your link: “That same week, Robinhood released software that erroneously reversed the direction of customer trades, which meant that a bet on a stock going up was turned into a bet that it would go down. Mr. Tenev oversaw technology. Technological issues continued piling up. In 2019, customers discovered that Robinhood’s software accidentally allowed them to borrow almost infinite amounts of money to multiply their stock bets. Last March, as the pandemic hit the United States and the stock market gyrated wildly, Robinhood’s app seized up for almost two days, leading some customers to lose more than $1 million.” I like disruptive businesses. But sometimes I think SV fetishizes the “move fast and break things” mantra without understanding that it may sound cool without appropriately acknowledging the risk it brings. I’m sometimes labeled as a codger but it makes me cringe when people espouse that attitude on projects that can ruin someone’s livelihood let alone on safety critical code that can end someone’s life