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> "Not being able to transact GME" is one thing, but they disabled the ability to buy, and kept the ability to sell. It wasn't a symmetric freeze - it was a del

> "Not being able to transact GME" is one thing, but they disabled the ability to buy, and kept the ability to sell. It wasn't a symmetric freeze - it was a deliberate action that could only have one outcome on the stock price. Because Robinhood didn't have enough margin to keep buying GME. But if you sold GME, that reduced the margin Robinhood had to keep. ------- In other words: Robinhood has no more money to buy GME on behalf of its customers. It could sell however, because selling unwound Robinhood's GME position. Robinhood (and Robinhood's partners) are "on the hook" for all GME for the 2-days in the T-2 transaction period of modern US trading law. Trades take 2 days to take place, so somebody needs to be "the risky bagholder" whenever a stock's price changes dramatically. Robinhood only had enough money to support X amount of buys. When that money ran out, Robinhood was unable to buy, and could only sell GME. Of course, this only happened for 2 days as the stocks / money exchanged hands. But 2 days is apparently an eternity and none of these stock buyers were buying GME for the long term, just for the hype of it all. So it was all over by the time Robinhood was able to buy again.

dangerlibrary 5y ago
I'm not confused why they did what they did. I understand the situation they were in. I'm saying they shouldn't have done it, and that there is an obvious conflict of interest when there's a short squeeze on hedge funds going on, and Robin Hood's paying customers are hedge funds. Stock freezes happen. They are, all things considered, fairly routine affairs. This was not a stock freeze - it was a company that got out over its skis, ran out of money, and screwed their users to ~unfuck the situation~ unwind their position.
- deleted 5y ago
  [deleted]
- bidirectional 5y ago
  They only did what they were forced to. Making an active choice to arbitrarily restrict selling as well would have been an insane move -- who are they to tell their customers they cannot sell something they own?
  - gruez 5y ago
    >who are they to tell their customers they cannot sell something they own? To be fair exchanges do that all the time (ie. trading halts).
    - deleted 5y ago
      [deleted]
- geph2021 5y ago
  I wonder if Robinhood could have changed their GME margin requirements? Not sure if that's allowed, but surely that would have allowed them to unwind some (margin call everyone who is leveraged long), and some customers who were willing to put up 100% to cover their GME buys could keep buying.
  - quickthrowman 5y ago
    No, the clearinghouse wasn’t going to change margin requirements, because those exist so transactions are completed………it’s the entire purpose of a clearinghouse. This subject is infuriating to discuss, nobody understands the basics of why it happened!!
  - gruez 5y ago
    As mentioned in my other comment, they can't use customer funds to fund collateral requirements. https://news.ycombinator.com/item?id=31209268 https://news.ycombinator.com/item?id=31209268
- dragontamer 5y ago
  > I'm saying they shouldn't have done it They had no choice. They literally couldn't obtain any more GME stock. You cannot squeeze blood out of a stone. What do you want Robinhood to do? The GME situation got into a "sold out" situation. Much like how a toy-store runs out of Furbies back in the 90s, Robinhood ran out of GME-stock to sell to its customers. They would allow "selling", because Robinhood can then obtain that customer's GME stock, and then give it to another customer almost immediately. ------------ All of this margins and stuff is probably just overcomplicating things. You're basically getting mad at toy stores for running out of Furbies, PS5 (or whatever fad-toy is available) during Christmas. Sold-out means sold-out, they can't sell you anymore. But they were willing to accept sell orders (aka: buy GME stocks from others), because that would replenish their stocks of GME to sell to other customers. If some PS5 scalper came up to (insert store here) saying "I wanna sell my PS5 at market prices", of course the toy-store would buy the PS5 (and immediately sell it to the next customer for a higher price).
  - BigBubbleButt 5y ago
    > The GME situation got into a "sold out" situation. Much like how a toy-store runs out of Furbies back in the 90s, Robinhood ran out of GME-stock to sell to its customers. This is a poor analogy. So long as there is a large enough float, which is a requirement to be listed on some exchanges, there should always be stock to buy and sell. Don't compare it to something else that's commonplace and misleading. I am aware of the margin requirements and what happened with DTCC and am purposefully avoiding that more complicated subject only to point out how much I dislike your analogy.
    - Denvercoder9 5y ago
      It's not that bad of an analogy. When a toy store runs out of Furbies, that doesn't mean there's no Furbies available on the world market anymore. It just means that at that specific toy store you can't get any Furbies anymore. When they get resupplied (posted additional collateral, in the case of Robin Hood), you can buy from them again.
      - 5y ago
- Denvercoder9 5y ago
  There's a big difference between a stock freeze imposed by an exchange, and a broker prohibiting its clients from trading a given stock. If you're actively preventing your clients from selling the stock they own, that costs them actual money if the stock goes down and can very well end in expensive lawsuits. If you prevent them from buying more stock, they only lose the opportunity cost, which is generally much harder to recover by legal means.
  - f-securus 5y ago
    If a broker that handles a very large portion of retail trades suddenly blocks purchasing a security that retail trading has driven the price up then it stops retail pressure and the stock price will obviously drop.... you could say Robinhood cost retail money by removing the upward pressure on the stock. The SEC report on the incident mentions the price rise was mostly due to retail FOMO, and not the suspected short squeeze that got the early folks attention. A laymen would look at what Robinhood did and think Robinhood cut the fuse to the short squeeze bomb.
    - Denvercoder9 5y ago
      The problem with this analysis is that Robinhood didn't choose to block buy orders, they were forced to because they were no longer able to fulfill them. You can argue about whether Robinhood should've been better prepared for the volatility that arose (and that could be an interesting conversation by itself), but they weren't. GP claims "they shouldn't have done it", but continuing wasn't an option. The only other choice they had was to suspend trading in GME all together (both buy and sell orders), but I don't see how that wasn't strictly worse for them and their clients.
      - chii 5y ago
        it might have made robinhood look better to uninformed retail traders if they disabled both the sell button as well as the buy button.
        5y ago
- WoahNoun 5y ago
  Not doing it would have resulted in Robinhood being declared insolvent and entered into receivership at the close of trading day. All investment accounts would have been frozen for at least a year as the insolvency is unwound. Financial firms (including brokerages) don't go through "bankruptcy" like other corporations. They are liquidated during the nightly clearing process. The SEC report says the short squeeze drove the initial price action, but retail attempting to chase the short squeeze drove the majority of the price increase when RH was shutting down trading. (Graph on page 28 or 29 of the SEC report shows this).
- mumblemumble 5y ago
  Maybe I'm missing something here, but it seems to me that freezing selling as well as buying would have screwed their retail customers even worse? Temporarily halting all trading is something an exchange can reasonably do, sure. But for an individual retail brokerage to do it (instead of only halting buying) seems like something that straight-up shouldn't be legal. Basically because of the balance of upside and downside -- If I can't buy into a stock that's suddenly spiked, at best I'm experiencing FOMO and at worst I'm missing out on some potential profits. If I can't liquidate my position on a stock that's suddenly spiked, then at best I'm missing a chance to realize my gains and at worst I'm being forced to sit there and lose money. (I realize this is only considering long buying. TBH, I can't really think up a story for retail short sellers more compassionate than "caveat vendor." Nor am I sure why I should try to.)
  - filoleg 5y ago
    > Maybe I'm missing something here, but it seems to me that freezing selling as well as buying would have screwed their retail customers even worse? You aren't missing anything. This is fairly obvious to anyone who understands how exchanges/brokers operate even on a basic level. The bottom line of it is, disabling buying was a hard necessity to avoid a complete disaster for everyone involved (including customers). Disabling selling wasn't a necessity in any way whatsoever. It wouldn't have solved any problem at all, and would only add an extra problem for customers who wish to exit their positions.
    - mumblemumble 5y ago
      OK, thanks for the validation. I think the next step, then, is to observe that I don't see how this can be characterized as a case of Robinhood getting out over their skis. Gamestonk looks for all the world to me like it was a black swan event that nobody could have anticipated. And the amount of reserve money Robinhood's clearer required is, realistically, set by the clearer. I suppose technically Robinhood could have held more, but that seems like the kind of thing that no consortium of mere humans would ever actually do, right? Just something a monday morning quarterback might say they should have done.
kareemsabri 5y ago
This is another way of saying Robinhood did not have the capital reserves required to fulfill their obligations as a broker-dealer to their customers. Also, it is not correct that they "didn't have enough money to buy GME". Restricting trading of GME was a choice they made to post less collateral, which they didn't have.
- gruez 5y ago
  > This is another way of saying Robinhood did not have the capital reserves required to fulfill their obligations as a broker-dealer to their customers. That's basically how the entire financial system works. You're supposed to be able to withdraw deposits as cash, but if everybody does it (from say, an internet meme event), the banks obviously wouldn't be able to "fulfill their obligations [...] to their customers". It's also unreasonable to have 100% of deposits as cash on hand on the unlikely chance that occurs. >Also, it is not correct that they "didn't have enough money to buy GME". Restricting trading of GME was a choice they made to post less collateral, which they didn't have. I don't get what distinction you're trying to make here? That "money" doesn't mean "collateral"? Those seem fairly interchangeable in this context.
  - adhesive_wombat 5y ago
    > It's also unreasonable to have 100% of deposits as cash on hand on the unlikely chance that occurs. Indeed, that's the whole point of fractional reserve.
- dragontamer 5y ago
  > Also, it is not correct that they "didn't have enough money to buy GME". Restricting trading of GME was a choice they made to post less collateral, which they didn't have. Collateral in this case is just a fancy word meaning "money".
vmception 5y ago
You're missing the point on behalf of some other people that are missing the point. If they didn't have the conflict of interest it would have been obvious to them that they needed to disable sells as well as the buys. Just freeze the stock, instead of only considering the freezing of the buys as a mere technicality while being pushed towards the convenience of keeping sells open. The point is for them to think of their users and balance decisions with what users would think.
- dragontamer 5y ago
  > If they didn't have the conflict of interest it would have been obvious to them that they needed to disable sells as well as the buys. Why? Robinhood wanted more GME for themselves so that they can sell it to other customers, who were furiously buying up GME to the point that Robinhood ran out of GME to sell. ------- That's like a Gamestop banning used PS5 during Christmas. Erm... wait, you want to sell me your used PS5 when no one else can get it? Sure, I'll buy it from you (and immediately resell it within 5 minutes). The problem is that there's this *myth*, this *conspiracy* where a cabal of shadowy people were "owned" by the noble Redditors / meme-stonk buyers who saved the world... and people who participated in the myth want to be seen as the "good guys". But in actuality, they're jumping at shadows and inventing boogiemen, and fundamentally misunderstanding the situation. I mean, whatever. Its what people do and it happens all the time. But Imma call people's idiocy out when it happens. For people who actually want to understand the GME event, feel free to read the GME report from the SEC: https://www.sec.gov/page/sec-staff-release-gamestop-report https://www.sec.gov/page/sec-staff-release-gamestop-report And stay away from the meme-stonk myths. Those guys don't know what they're talking about.
  - vmception 5y ago
    Broker level stock halts happen all the time too, it was an option. Robinhood has conflicts of interest that don't require meme stock myths. The collateral requirements was from DTCC which affected many brokers and Robinhood simply got all the attention and is unrelated to Robinhood's conflict of interest, doesnt that prove I'm not subscribing to the conspiracies? The conflict of interest is that Citadel is their primary customer who gets all the trade data from robinhood's user. Citadel infused capital into Melvin which was the main fund Robinhood's users were trying to target because of Melvin's short position in Gamestop. The shadowy cabal conversation never needs to occur. Robinhood reacted to the DTCC collateral requirements, they should have reacted to their users as well, having a little drop of emotional intelligence to say "oh yeah this is reason to do a stock halt" instead of an asymmetric one.
f-securus 5y ago
If majority of retail was blocked out of buying during this period, then who was on the other end of the transaction and why do you think they would be buying when retail has the buy button turned off and the stock is 'severely disconnected from reality'? Could Robinhood have disabled margin accounts and only allowed people to purchase with settled cash as a way to keep the margin requirements in check? It seems big money was conspiring against retail and makes it difficult to trust the current opaque system.
- eftychis 5y ago
  a) "big money" -- (such as retirement accounts or other institutions) -- don't care about "retail." They have to follow certain risk regulations and plans and will follow them, and that's it. Market makers will try to drive ahead of the market in an effort to provide liquidity (and make money to live and prosper in the process). b) Robinhood was "blocked" because it decided to not do any serious risk management. And by blocked we mean it didn't have the cash that the clearinghouse required to service them. c) No the collateral is for the clearance. The margin you refer to is what Robinhood lends you the customer. They are handling (mishandling in the case of Robinhood) their own equivalent side to be able to provide you with those stock trades. What you see as a successful trade is only the execution of the trade -- that is someone has agreed to buy or sell at the price you asked/bid for. Next someone (broker + clearing house) needs to clear (Robinhood fucked up here) and then needs to settle. The clearing house takes the risk in case one of the counterparties falters or becomes insolvent, to ensure transactions do happen. It takes 2 days to trade (execution to settlement) non-options in most systems I am aware of these days. c') Robinhood was just blind sided when its clearinghouse said "Hey, you know you actually just have way more buys that are more volatile than normal to the point of issues at clearing is 1, so increase your collateral." Robinhood said:"No money." Clearinghouse: "No worries, no trades, until you change your risk profile." (Here is a quick link (just googled, couldn't find a better article I like) outlining the process https://thismatter.com/money/stocks/settlement-and-clearing.htm https://thismatter.com/money/stocks/settlement-and-clearing..... P.S. (@Edit): Also the brokers can not legally touch the customers' "hard cash" money and post it to cover their own obligations -- that would be commingling and let us say it is not good. I am not going to even begin imagining the issues, but people continuously get screwed due to commingling of funds.

dangerlibrary 5y ago

I'm not confused why they did what they did. I understand the situation they were in. I'm saying they shouldn't have done it, and that there is an obvious conflict of interest when there's a short squeeze on hedge funds going on, and Robin Hood's paying customers are hedge funds. Stock freezes happen. They are, all things considered, fairly routine affairs. This was not a stock freeze - it was a company that got out over its skis, ran out of money, and screwed their users to ~unfuck the situation~ unwind their position.

deleted 5y ago
[deleted]
bidirectional 5y ago
They only did what they were forced to. Making an active choice to arbitrarily restrict selling as well would have been an insane move -- who are they to tell their customers they cannot sell something they own?
- gruez 5y ago
  >who are they to tell their customers they cannot sell something they own? To be fair exchanges do that all the time (ie. trading halts).
  - deleted 5y ago
    [deleted]
geph2021 5y ago
I wonder if Robinhood could have changed their GME margin requirements? Not sure if that's allowed, but surely that would have allowed them to unwind some (margin call everyone who is leveraged long), and some customers who were willing to put up 100% to cover their GME buys could keep buying.
- quickthrowman 5y ago
  No, the clearinghouse wasn’t going to change margin requirements, because those exist so transactions are completed………it’s the entire purpose of a clearinghouse. This subject is infuriating to discuss, nobody understands the basics of why it happened!!
- gruez 5y ago
  As mentioned in my other comment, they can't use customer funds to fund collateral requirements. https://news.ycombinator.com/item?id=31209268 https://news.ycombinator.com/item?id=31209268
dragontamer 5y ago
> I'm saying they shouldn't have done it They had no choice. They literally couldn't obtain any more GME stock. You cannot squeeze blood out of a stone. What do you want Robinhood to do? The GME situation got into a "sold out" situation. Much like how a toy-store runs out of Furbies back in the 90s, Robinhood ran out of GME-stock to sell to its customers. They would allow "selling", because Robinhood can then obtain that customer's GME stock, and then give it to another customer almost immediately. ------------ All of this margins and stuff is probably just overcomplicating things. You're basically getting mad at toy stores for running out of Furbies, PS5 (or whatever fad-toy is available) during Christmas. Sold-out means sold-out, they can't sell you anymore. But they were willing to accept sell orders (aka: buy GME stocks from others), because that would replenish their stocks of GME to sell to other customers. If some PS5 scalper came up to (insert store here) saying "I wanna sell my PS5 at market prices", of course the toy-store would buy the PS5 (and immediately sell it to the next customer for a higher price).
- BigBubbleButt 5y ago
  > The GME situation got into a "sold out" situation. Much like how a toy-store runs out of Furbies back in the 90s, Robinhood ran out of GME-stock to sell to its customers. This is a poor analogy. So long as there is a large enough float, which is a requirement to be listed on some exchanges, there should always be stock to buy and sell. Don't compare it to something else that's commonplace and misleading. I am aware of the margin requirements and what happened with DTCC and am purposefully avoiding that more complicated subject only to point out how much I dislike your analogy.
  - Denvercoder9 5y ago
    It's not that bad of an analogy. When a toy store runs out of Furbies, that doesn't mean there's no Furbies available on the world market anymore. It just means that at that specific toy store you can't get any Furbies anymore. When they get resupplied (posted additional collateral, in the case of Robin Hood), you can buy from them again.
    - 5y ago
Denvercoder9 5y ago
There's a big difference between a stock freeze imposed by an exchange, and a broker prohibiting its clients from trading a given stock. If you're actively preventing your clients from selling the stock they own, that costs them actual money if the stock goes down and can very well end in expensive lawsuits. If you prevent them from buying more stock, they only lose the opportunity cost, which is generally much harder to recover by legal means.
- f-securus 5y ago
  If a broker that handles a very large portion of retail trades suddenly blocks purchasing a security that retail trading has driven the price up then it stops retail pressure and the stock price will obviously drop.... you could say Robinhood cost retail money by removing the upward pressure on the stock. The SEC report on the incident mentions the price rise was mostly due to retail FOMO, and not the suspected short squeeze that got the early folks attention. A laymen would look at what Robinhood did and think Robinhood cut the fuse to the short squeeze bomb.
  - Denvercoder9 5y ago
    The problem with this analysis is that Robinhood didn't choose to block buy orders, they were forced to because they were no longer able to fulfill them. You can argue about whether Robinhood should've been better prepared for the volatility that arose (and that could be an interesting conversation by itself), but they weren't. GP claims "they shouldn't have done it", but continuing wasn't an option. The only other choice they had was to suspend trading in GME all together (both buy and sell orders), but I don't see how that wasn't strictly worse for them and their clients.
    - chii 5y ago
      it might have made robinhood look better to uninformed retail traders if they disabled both the sell button as well as the buy button.
      - 5y ago
WoahNoun 5y ago
Not doing it would have resulted in Robinhood being declared insolvent and entered into receivership at the close of trading day. All investment accounts would have been frozen for at least a year as the insolvency is unwound. Financial firms (including brokerages) don't go through "bankruptcy" like other corporations. They are liquidated during the nightly clearing process. The SEC report says the short squeeze drove the initial price action, but retail attempting to chase the short squeeze drove the majority of the price increase when RH was shutting down trading. (Graph on page 28 or 29 of the SEC report shows this).
mumblemumble 5y ago
Maybe I'm missing something here, but it seems to me that freezing selling as well as buying would have screwed their retail customers even worse? Temporarily halting all trading is something an exchange can reasonably do, sure. But for an individual retail brokerage to do it (instead of only halting buying) seems like something that straight-up shouldn't be legal. Basically because of the balance of upside and downside -- If I can't buy into a stock that's suddenly spiked, at best I'm experiencing FOMO and at worst I'm missing out on some potential profits. If I can't liquidate my position on a stock that's suddenly spiked, then at best I'm missing a chance to realize my gains and at worst I'm being forced to sit there and lose money. (I realize this is only considering long buying. TBH, I can't really think up a story for retail short sellers more compassionate than "caveat vendor." Nor am I sure why I should try to.)
- filoleg 5y ago
  > Maybe I'm missing something here, but it seems to me that freezing selling as well as buying would have screwed their retail customers even worse? You aren't missing anything. This is fairly obvious to anyone who understands how exchanges/brokers operate even on a basic level. The bottom line of it is, disabling buying was a hard necessity to avoid a complete disaster for everyone involved (including customers). Disabling selling wasn't a necessity in any way whatsoever. It wouldn't have solved any problem at all, and would only add an extra problem for customers who wish to exit their positions.
  - mumblemumble 5y ago
    OK, thanks for the validation. I think the next step, then, is to observe that I don't see how this can be characterized as a case of Robinhood getting out over their skis. Gamestonk looks for all the world to me like it was a black swan event that nobody could have anticipated. And the amount of reserve money Robinhood's clearer required is, realistically, set by the clearer. I suppose technically Robinhood could have held more, but that seems like the kind of thing that no consortium of mere humans would ever actually do, right? Just something a monday morning quarterback might say they should have done.

kareemsabri 5y ago

This is another way of saying Robinhood did not have the capital reserves required to fulfill their obligations as a broker-dealer to their customers. Also, it is not correct that they "didn't have enough money to buy GME". Restricting trading of GME was a choice they made to post less collateral, which they didn't have.

gruez 5y ago
> This is another way of saying Robinhood did not have the capital reserves required to fulfill their obligations as a broker-dealer to their customers. That's basically how the entire financial system works. You're supposed to be able to withdraw deposits as cash, but if everybody does it (from say, an internet meme event), the banks obviously wouldn't be able to "fulfill their obligations [...] to their customers". It's also unreasonable to have 100% of deposits as cash on hand on the unlikely chance that occurs. >Also, it is not correct that they "didn't have enough money to buy GME". Restricting trading of GME was a choice they made to post less collateral, which they didn't have. I don't get what distinction you're trying to make here? That "money" doesn't mean "collateral"? Those seem fairly interchangeable in this context.
- adhesive_wombat 5y ago
  > It's also unreasonable to have 100% of deposits as cash on hand on the unlikely chance that occurs. Indeed, that's the whole point of fractional reserve.
dragontamer 5y ago
> Also, it is not correct that they "didn't have enough money to buy GME". Restricting trading of GME was a choice they made to post less collateral, which they didn't have. Collateral in this case is just a fancy word meaning "money".

vmception 5y ago

You're missing the point on behalf of some other people that are missing the point. If they didn't have the conflict of interest it would have been obvious to them that they needed to disable sells as well as the buys. Just freeze the stock, instead of only considering the freezing of the buys as a mere technicality while being pushed towards the convenience of keeping sells open. The point is for them to think of their users and balance decisions with what users would think.

dragontamer 5y ago
> If they didn't have the conflict of interest it would have been obvious to them that they needed to disable sells as well as the buys. Why? Robinhood wanted more GME for themselves so that they can sell it to other customers, who were furiously buying up GME to the point that Robinhood ran out of GME to sell. ------- That's like a Gamestop banning used PS5 during Christmas. Erm... wait, you want to sell me your used PS5 when no one else can get it? Sure, I'll buy it from you (and immediately resell it within 5 minutes). The problem is that there's this *myth*, this *conspiracy* where a cabal of shadowy people were "owned" by the noble Redditors / meme-stonk buyers who saved the world... and people who participated in the myth want to be seen as the "good guys". But in actuality, they're jumping at shadows and inventing boogiemen, and fundamentally misunderstanding the situation. I mean, whatever. Its what people do and it happens all the time. But Imma call people's idiocy out when it happens. For people who actually want to understand the GME event, feel free to read the GME report from the SEC: https://www.sec.gov/page/sec-staff-release-gamestop-report https://www.sec.gov/page/sec-staff-release-gamestop-report And stay away from the meme-stonk myths. Those guys don't know what they're talking about.
- vmception 5y ago
  Broker level stock halts happen all the time too, it was an option. Robinhood has conflicts of interest that don't require meme stock myths. The collateral requirements was from DTCC which affected many brokers and Robinhood simply got all the attention and is unrelated to Robinhood's conflict of interest, doesnt that prove I'm not subscribing to the conspiracies? The conflict of interest is that Citadel is their primary customer who gets all the trade data from robinhood's user. Citadel infused capital into Melvin which was the main fund Robinhood's users were trying to target because of Melvin's short position in Gamestop. The shadowy cabal conversation never needs to occur. Robinhood reacted to the DTCC collateral requirements, they should have reacted to their users as well, having a little drop of emotional intelligence to say "oh yeah this is reason to do a stock halt" instead of an asymmetric one.

f-securus 5y ago

If majority of retail was blocked out of buying during this period, then who was on the other end of the transaction and why do you think they would be buying when retail has the buy button turned off and the stock is 'severely disconnected from reality'? Could Robinhood have disabled margin accounts and only allowed people to purchase with settled cash as a way to keep the margin requirements in check? It seems big money was conspiring against retail and makes it difficult to trust the current opaque system.

eftychis 5y ago
a) "big money" -- (such as retirement accounts or other institutions) -- don't care about "retail." They have to follow certain risk regulations and plans and will follow them, and that's it. Market makers will try to drive ahead of the market in an effort to provide liquidity (and make money to live and prosper in the process). b) Robinhood was "blocked" because it decided to not do any serious risk management. And by blocked we mean it didn't have the cash that the clearinghouse required to service them. c) No the collateral is for the clearance. The margin you refer to is what Robinhood lends you the customer. They are handling (mishandling in the case of Robinhood) their own equivalent side to be able to provide you with those stock trades. What you see as a successful trade is only the execution of the trade -- that is someone has agreed to buy or sell at the price you asked/bid for. Next someone (broker + clearing house) needs to clear (Robinhood fucked up here) and then needs to settle. The clearing house takes the risk in case one of the counterparties falters or becomes insolvent, to ensure transactions do happen. It takes 2 days to trade (execution to settlement) non-options in most systems I am aware of these days. c') Robinhood was just blind sided when its clearinghouse said "Hey, you know you actually just have way more buys that are more volatile than normal to the point of issues at clearing is 1, so increase your collateral." Robinhood said:"No money." Clearinghouse: "No worries, no trades, until you change your risk profile." (Here is a quick link (just googled, couldn't find a better article I like) outlining the process https://thismatter.com/money/stocks/settlement-and-clearing.htm https://thismatter.com/money/stocks/settlement-and-clearing..... P.S. (@Edit): Also the brokers can not legally touch the customers' "hard cash" money and post it to cover their own obligations -- that would be commingling and let us say it is not good. I am not going to even begin imagining the issues, but people continuously get screwed due to commingling of funds.