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excellent example of the effects of misinformation on the internet. “robinhood lied” is a much more attractive story than what really happened: https://youtu.be

excellent example of the effects of misinformation on the internet. “robinhood lied” is a much more attractive story than what really happened: https://youtu.be/DHM4gFiem7s https://youtu.be/DHM4gFiem7s

SilasX 5y ago
That is a really information-sparse way to convey whatever point is being made. Is there a better link that maybe doesn’t take two hours and can be read?
- anchpop 5y ago
  couldn’t find another one that covered every misconception in the article, sorry. long story short, more volatility means higher collateral requirements when executing trades, and robinhood didn’t have the collateral needed to support everyone and their dog trying to buy what had become one of the most volatile stocks of all time, so their only options were to stop accepting buy orders or be in violation of the law. payment for order flow is industry standard practice and it’s not really fair to describe it as “taking a small cut of every trade” although i guess it could technically be seen that way. there’s no evidence citadel pressured RH in any way, and all available evidence suggests they didn’t even have an incentive to because they divested from GME almost immediately
  - SilasX 5y ago
    So the same talking points from 7 months ago. https://news.ycombinator.com/item?id=25960229 https://news.ycombinator.com/item?id=25960229
  - addingnumbers 5y ago
    Showing my ignorance here, if I'm giving them $100 for $100 worth of GME, why does collateral come into the picture? I don't see where there's any debt to collateralize in a straight trade like that.
    - Tsiklon 5y ago
      I’m not certain if I’m completely correct here, but as I understand it - many of these trading platforms will allow you to use the money you deposit into their system immediately. The actual transaction that fulfils that deposit often takes a day or two to complete. If you deposit $100 and use it to immediately buy $100 of GME, RH and the other platforms effectively borrow money to fulfil that trade. At scale, if they have a large number of new customers making use of that facility simultaneously they may actually exhaust the amount of credit they have access to for the given amount of collateral they’ve fronted to their lender.
      - SilasX 5y ago
        But they were denying GME trades even to people who had well-settled money that was deposited months ago.
    - variationvalue 5y ago
      Because they can't use customer funds for these collateral requirements. Note though that the collateral requirements only apply to firm-wide net buys. So if you're buying $100 of GME and another person on the platform is selling $100 of GME and those are the only two trades for GME that day, those trades would net out reducing the collateral requirement. So on a day where there's a substantial net buy, money is basically being put up in twice, both by the customers and the broker.
      - addingnumbers 5y ago
        The question is why are there collateral requirements at all for a straight trade, though? In this example there is enough cash in the system to resolve everything without debt. If you go to the bookstore and give them $105 for a rare $100 book +markup, and they say they can't get it because they don't have collateral, how would that make any sense? You gave them all the money they need to buy the book outright. Why collateral?
        variationvalue 5y ago

SilasX 5y ago

That is a really information-sparse way to convey whatever point is being made. Is there a better link that maybe doesn’t take two hours and can be read?

anchpop 5y ago
couldn’t find another one that covered every misconception in the article, sorry. long story short, more volatility means higher collateral requirements when executing trades, and robinhood didn’t have the collateral needed to support everyone and their dog trying to buy what had become one of the most volatile stocks of all time, so their only options were to stop accepting buy orders or be in violation of the law. payment for order flow is industry standard practice and it’s not really fair to describe it as “taking a small cut of every trade” although i guess it could technically be seen that way. there’s no evidence citadel pressured RH in any way, and all available evidence suggests they didn’t even have an incentive to because they divested from GME almost immediately
- SilasX 5y ago
  So the same talking points from 7 months ago. https://news.ycombinator.com/item?id=25960229 https://news.ycombinator.com/item?id=25960229
- addingnumbers 5y ago
  Showing my ignorance here, if I'm giving them $100 for $100 worth of GME, why does collateral come into the picture? I don't see where there's any debt to collateralize in a straight trade like that.
  - Tsiklon 5y ago
    I’m not certain if I’m completely correct here, but as I understand it - many of these trading platforms will allow you to use the money you deposit into their system immediately. The actual transaction that fulfils that deposit often takes a day or two to complete. If you deposit $100 and use it to immediately buy $100 of GME, RH and the other platforms effectively borrow money to fulfil that trade. At scale, if they have a large number of new customers making use of that facility simultaneously they may actually exhaust the amount of credit they have access to for the given amount of collateral they’ve fronted to their lender.
    - SilasX 5y ago
      But they were denying GME trades even to people who had well-settled money that was deposited months ago.
  - variationvalue 5y ago
    Because they can't use customer funds for these collateral requirements. Note though that the collateral requirements only apply to firm-wide net buys. So if you're buying $100 of GME and another person on the platform is selling $100 of GME and those are the only two trades for GME that day, those trades would net out reducing the collateral requirement. So on a day where there's a substantial net buy, money is basically being put up in twice, both by the customers and the broker.
    - addingnumbers 5y ago
      The question is why are there collateral requirements at all for a straight trade, though? In this example there is enough cash in the system to resolve everything without debt. If you go to the bookstore and give them $105 for a rare $100 book +markup, and they say they can't get it because they don't have collateral, how would that make any sense? You gave them all the money they need to buy the book outright. Why collateral?
      - variationvalue 5y ago