Robinhood reports 43% revenue decline

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(May be other brokerages have started matching Robinhood but the one I use ETrade still takes 2 full days to settle and then another 3 days to withdraw cash. It also takes 2-3 working days to deposit cash. So if you spot a buying opportunity you can't. Or, you'd always keep cash lying around and ready in the account.)

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.

If an asset manager wants to buy treasuries for hedging purposes, or an ETF manager wants to buy equities to rebalance, they are also uninformed from the perspective of a market maker.

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.

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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).

Take the GME short squeeze, which a lot of people still fundamentally misunderstand. RH allowed (allows?) you to sign up, promise to deposit funds and trade on credit, essentially, until those funds arrive (typically in no less than 3 days). That settlement process dind't go away. RH just abosrbed the risk.

That's fine when the market is normal. Some people might buy GE and others might sell GE so it all evens out. By this I mean the default risk to RH is mitigated (but still real).

The problem with GME is everyone was buying in a short space of time to the point RH had to borrow billions to cover the collateral requirements to the point it was risking making the company insolvent. That's how extreme it was. So what happens if people sign up, buy GME on credit and then GME crashes? RH is left holding the bag. That was the problem. It's also why GME blocked further purchases bu tallowed sales because sales decreased their overall risk no matter where they came from.

But no, how things actually work is ignored in favor of the system protecting hedge funds.

Personally I don't use any free brokerage because of the order flow issue, which is to say that all your orders are sold to hedge funds and that's where RH makes it's money. Just like with free online services that sell advertising: you are the product. It's so wild to me that people bitch about the evils of advertising but accept without question the selling of order flow, which is directtly taking money from your pockets. Crazy.

It's even crazier when you consider that the aforementioned evil hedge funds supposedly protecting GME short sellers are directly funding and benefitting from RH order flow but they get no flak for that.

You can only get away from not knowing how the underlying thing works. It'll eventually come back to bite you in the ass.