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Robinhood, in Need of Cash, Raises $1B from Its Investors

nytimes.com

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Re: Robinhood, in Need of Cash, Raises $1B from Its Investors

#331

Post by rattray »

rtkwe wrote: post #312
michaelt wrote: post #266

Earlier quoted context omitted.

> Non-zero chance had they not haulted trading on those symbols they would've been insolvent by close of trading today, depending on the size of their credit line. Perhaps you can help me understand something. In the absence of margin trading, if I deposit $100 of cash at my brokerage, then I order my broker to buy $100 worth of Stock A, how does credit and the possibility of bankruptcy enter into the transaction at…

They have to have a certain amount to cover the value of all the stocks held by their clients so when 50% of their account holders have a stock that suddenly gains 2-20x value things get tight. In your analogy the price of the milk is relatively stable in the case of gamestop the value of the milk is fluctuating wildly between the time you sent the kid, when he got to the store, when he picked up the milk, etc etc. e…

> They have to have a certain amount to cover the value of all the stocks held by their clients

Huh? I don't understand this. What do they have to hold and why?

Re: Robinhood, in Need of Cash, Raises $1B from Its Investors

#332

Post by ilikehurdles »

Clewza313 wrote: post #127
AmericanChopper wrote: post #116

Earlier quoted context omitted.

> people YOLOing on meme stonks This is all that day trading is. Regardless of whether the traders even know what a meme subreddit is. Why would any day trader want to use a platform that’s going to do stuff like cut you out of an epic short squeeze? If a non-professional investor had sensible ideas, they wouldn’t be day trading.

There's day trading, and then there's taking out credit card cash advances to buy leveraged call options on a stock that's already gone up 1000% in a month. Both are risky, but the day traders I've known wouldn't touch the latter with a barge pole.

You couldn’t buy any of the stocks with settled cash. Why keep bringing up margin and leverage and credit cards? Several other brokers did halt buying after Alpha Clearinghouse said they couldn’t fulfill them — but that block from the clearinghouse lasted a few hours on a few securities. Robinhood blocked a lot more securities for the entirety of the day.

There’s this need to paint retail investors as incapable of understanding margin and leverage to bias the conversation and make them seem in need of being rescued from themselves — but robinhood hurt a lot more than just those over-leveraged people (not that they would be justified in hurting any of them).

I had small positions in the app for the last year after starting an etrade account — none of them in memes and none of them on margin, none of them blocked by RH’s actions - and I will be joining the people exiting and closing their accounts.

If you’re looking for a casual broker that doesn’t behave unethically and incentivizes safe and informed investing for newbies, take a look at Public[1].

[1]: https://medium.com/the-public-blog/a-note-on-access-with-res...

Re: Robinhood, in Need of Cash, Raises $1B from Its Investors

#333

Post by rattray »

iNic wrote: post #282
michaelt wrote: post #266

Earlier quoted context omitted.

> Non-zero chance had they not haulted trading on those symbols they would've been insolvent by close of trading today, depending on the size of their credit line. Perhaps you can help me understand something. In the absence of margin trading, if I deposit $100 of cash at my brokerage, then I order my broker to buy $100 worth of Stock A, how does credit and the possibility of bankruptcy enter into the transaction at…

The people using Robinhood are to some degree trading on margin, that means that they are trading with money they don't have in their account, which means that Robinhood also does not have it, at least not from you. They need to have a buffer of money to deal with the borrowing, which in this case they almost ran out of.

Is that knowingly trading on margin, or just how it works behind the scenes? If the latter, why?

Re: Robinhood, in Need of Cash, Raises $1B from Its Investors

#334

Post by maxerickson »

cced wrote: post #242

I don’t understand how all of a sudden the shift was made onto the insolvency of RH and that the discussion is less about the original conditions that led up to this. I just finished watching a video from Louis Rossmann [1] as well as one from Bruce Fenton [2]. In his video, Rossmann covers the technicalities and systems behind actually __making__ a trade with an app like RH. The videos were very informative and I le…

They still shit the bed as a brokerage, which is premised on providing individuals the ability to buy and sell stocks.

Not being able to meet the terms of a lending agreement is likely a legitimate reason for altering the services available to their customers, but it is also a massive failure.

Re: Robinhood, in Need of Cash, Raises $1B from Its Investors

#335

Post by rattray »

IG_Semmelweiss wrote: post #314
nojito wrote: post #305

Earlier quoted context omitted.

Trades aren't immediate they take T+2 to clear. During that time frame, Robinhood has to put up collateral.

Correct. And more to the point, RH cannot use customer funds to cover that timeframe. It must be its own funds. And the requirement of funds to be covering (collateral) can change on them with very little warning

Who determines the collateral required?

Re: Robinhood, in Need of Cash, Raises $1B from Its Investors

#336

Post by Dirlewanger »

cced wrote: post #242

I don’t understand how all of a sudden the shift was made onto the insolvency of RH and that the discussion is less about the original conditions that led up to this. I just finished watching a video from Louis Rossmann [1] as well as one from Bruce Fenton [2]. In his video, Rossmann covers the technicalities and systems behind actually __making__ a trade with an app like RH. The videos were very informative and I le…

I don't understand why they couldn't just disable margin trading instead of buying the individual stocks. Margin trading was the real problem for them.

Re: Robinhood, in Need of Cash, Raises $1B from Its Investors

#337

Post by ehnto »

rattray wrote: post #331
rtkwe wrote: post #312

Earlier quoted context omitted.

They have to have a certain amount to cover the value of all the stocks held by their clients so when 50% of their account holders have a stock that suddenly gains 2-20x value things get tight. In your analogy the price of the milk is relatively stable in the case of gamestop the value of the milk is fluctuating wildly between the time you sent the kid, when he got to the store, when he picked up the milk, etc etc. e…

> They have to have a certain amount to cover the value of all the stocks held by their clients Huh? I don't understand this. What do they have to hold and why?

I presume it's a safety mechanism required by the financial apparatus so that they can make their investors whole if they ask to withdraw all at once. Something that given the current circumstances is actually quite possible. But being candid, that's just a guess.

Re: Robinhood, in Need of Cash, Raises $1B from Its Investors

#339

Post by rattray »

mocko wrote: post #295
drcongo wrote: post #258

Earlier quoted context omitted.

You might want to look a bit closer at Monzo, there was an entire episode of BBC's Watchdog [0] about them closing accounts and keeping people's money. Mine was frozen for well over a year with about three grand in it, no explanation, no apology. I only got it back in the end by involving the financial ombudsman via a website [1] specifically set up to help people who Monzo have scammed, because there are literally t…

This x100. A few months ago Monzo froze my account without warning or any reason. Thankfully they de-froze it after an hour, but I've spent months since then in a kafkaesque nightmare trying to get an explanation for their actions. "It was a mistake" ... "the law says we cannot tell you why" ... "if it was a mistake why does a law protect you from having to explain?" ... "the law says we don't have to answer that" ..…

The law is probably related to anti-money-laundering, sanctions compliance, etc. If they detect something possibly criminal, it's illegal for them to "tip off" the owner of the account.

This is true of basically any financial institution.

Of course, it is a problem that Monzo had a bug that caused your account to get flagged for this.

Re: Robinhood, in Need of Cash, Raises $1B from Its Investors

#340

Post by wernst »

ajsharp wrote: post #24

"To continue operating, it drew on a line of credit from six banks amounting to between $500 million and $600 million to meet higher margin, or lending, requirements from its central clearing facility for stock trades, known as the Depository Trust & Clearing Corporation." Non-zero chance had they not haulted trading on those symbols they would've been insolvent by close of trading today, depending on the size of the…

"The first rule of having a liquidity problem is dont talk about your liquidity problem"
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