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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

#341

Post by cashewchoo »

IG_Semmelweiss wrote: post #313
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 real reason is as follows: You cannot use customer funds to cover dtcc collateral terms. Your milk example does not work, because you are not settling up the milk buy 2 days after. You settle your milk purchase on the spot.

Huh I didn't know that. The firm I worked for did self-clearing, and we had no customers (prop trading). I guess that means these requirements didn't really matter for us because everything was ours?

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

#342

Post by Tenoke »

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…

RH limited 13-14 tickers, while most other brokers limited 0-2. Now, they probably had more comparative exposure to them but also the volatility and price changed massively due to their move.

More importantly they didn't communicate any of this in advance - they must've known this was coming yet suddenly stopped all buying and auto-sold everything on margin. It's hard to believe they couldn't have e.g. halted just margin trades a day before, given a warning etc. Instead they pretended everything was fine up until it blew up, and then as their first explanation claimed they are doing it to protect investors. It was only after a lot of outrage and filled lawsuits that they hinted at the real issue. So yes, they could've played this a lot better.

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

#343

Post by rattray »

kmlx wrote: post #199
onion2k wrote: post #96

Earlier quoted context omitted.

I’m not keeping my money with a financial institution that lies to me. I know for a fact my bank lies. They've been fined hundreds of millions of dollars for money laundering (it's HSBC). A few years ago I looked in to moving to a more honest bank, but I couldn't find one that also met basic criteria like having access to cash points in the UK and having a half decent mobile banking app. Literally every major bank th…

i've used: 1. revolut - these guys are complete jokers. closed after being asked to provide the proof of funding 3 times in 3 months. 2. hsbc/first direct - somewhat decent. but i only use it to top up my other accounts. i try to avoid them, as they're just too big. 3. starling - simple, no-nonsense banking from a startup. 4. revolut business - had my account closed down by the "bank" because they didn't want my busi…

Have you tried Schwab? Somewhat limited in what they offer as a bank, but I've only ever had positive experiences. Their web/app aren't wonderful but they get the job done.

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

#344

Post by cashewchoo »

rattray wrote: post #333
iNic wrote: post #282

Earlier quoted context omitted.

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?

The financial system is slow. ACH can take days before you can be sure things won't be reversed, trades take two days to settle, there's various anti-money-laundering policies everywhere that generally take the form of holding on to money for a bit to make shady things easier to track and detect.

So, anyway, for lots of reasons, things that users think should be instant, aren't. And that's really bad UX, especially for a platform that depends so much on emotional stuff: "deposit $200 bucks and buy 3 shares of X, leaving you with a $30 cash deposit which RH can then earn interest on" is probably how a large amount of RH's balances come into being. That breaks if it's going to be a 1-day gap between someone depositing their money and then buying the shares.

So everyone papers over holes like this with margin.

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

#345

Post by kryogen1c »

slfnflctd wrote: post #327
kryogen1c wrote: post #292

Earlier quoted context omitted.

actually im glad you said this. this is the core problem with this WSB/RH/GME event. a certain percentage of people in WSB only want to light a pile of their money on fire for the sole purpose of bankrupting some hedge funds. they expect no returns and only want to cause pain to people with more money than them that they dont like. another percentage of people (i think this group is much, much larger than the first)…

> left holding stock they bought for $100, $200, $300, or $400 a share (WSB was memeing share price was gonna go into the thousands) that is worth Many people said the same thing about TSLA before it stabilized at higher levels. I bought at under $40 and sold around $80 because I thought fundamentals mattered. Turns out they don't right now. Everyone talking about what GME is 'actually worth' is spouting bullshit. Th…

>Everyone talking about what GME is 'actually worth' is spouting bullshit. The fact is, no one knows. Because it's up to the market.

youre right in that no one, least of all me, can predict future stock prices, but i think youre missing the point. even if GME stabilizes at $150 - which is an unlikely tripling of value - most of the people involved are going to lose most of their investment.

the fundamental principal is that a short-squeeze HAS to end in a pricing crash. its the whole mechanism by which the squeeze occurs in the first place. the final price isnt really relevant, the point is that most people have to absorb large losses by definition. I think a lot of the players dont understand this; they think its free money, and are gonna scream bloody murder because they think they only lost because RH did something illegal. RH actions are irrelevant, legal or not, because the trade was bad in the first place.

the only way this doesnt happen is if the original market was wrong about GME to the tune of 1000%. maybe the short squeeze happens and GME never crashes, it peaks and stays at $350 and then beats the S&P 500 by 10% YoY for the next decade and everyone that bought long just makes money. if you believe that then well, good luck.

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

#346

Post by Tinyyy »

slfnflctd wrote: post #327
kryogen1c wrote: post #292

Earlier quoted context omitted.

actually im glad you said this. this is the core problem with this WSB/RH/GME event. a certain percentage of people in WSB only want to light a pile of their money on fire for the sole purpose of bankrupting some hedge funds. they expect no returns and only want to cause pain to people with more money than them that they dont like. another percentage of people (i think this group is much, much larger than the first)…

> left holding stock they bought for $100, $200, $300, or $400 a share (WSB was memeing share price was gonna go into the thousands) that is worth Many people said the same thing about TSLA before it stabilized at higher levels. I bought at under $40 and sold around $80 because I thought fundamentals mattered. Turns out they don't right now. Everyone talking about what GME is 'actually worth' is spouting bullshit. Th…

TSLA was included into the S&P because they had a profitable business - GME makes net losses so the S&P won’t be bagholding it.

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

#347

Post by rokobobo »

Miner49er wrote: post #315
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 need to watch your videos and learn more, but to continue your train of thought: If the clearinghouses didn't put these requirements on RH, or ask brokers to stop buying of these shares, I assume they themselves are at risk of going under? (As you said, who's supposed to front those 5000% returns?) If that happens, would it not lead to a cascading failure of both clearinghouses and brokers going under? The end resu…

Just to be clear, there aren’t multiple clearinghouses for US equities. There’s one, the DTCC. They handle effectively all of the US equities trades’s settlement cycle. If there’s any kind of doubt that they don’t have enough collateral and they need to take losses, it could cause a lot of chaos. Initiating the kind of “stop all trading” you refer to, is a lot more complicated than it sounds. You would get a sort of a stock market equivalent of a bank run.

On the flip side, (1) they’re known to ask people to post more money than necessary, because they like to err on the side of caution, and (2) if they ask you for money, you just post it, or you risk being kicked off from trading US equities for a long time.

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

#348

Post by [deleted] »

Miner49er wrote: post #315
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 need to watch your videos and learn more, but to continue your train of thought: If the clearinghouses didn't put these requirements on RH, or ask brokers to stop buying of these shares, I assume they themselves are at risk of going under? (As you said, who's supposed to front those 5000% returns?) If that happens, would it not lead to a cascading failure of both clearinghouses and brokers going under? The end resu…

[deleted]

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

#349

Post by Person5478 »

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…

> except the kid is legally required to deliver the milk or make you whole. ... *milk*?

The poor boy will have to pull on teats until he fills the pail, how terrible.

/I'll show myself out.

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

#350

Post by briefcomment »

feelix wrote: post #318
briefcomment wrote: post #289

Earlier quoted context omitted.

I think that’s GPs point.

it's not. Here's an example Scenario 1: 1. Client buys share for $400 2. Hedge funds get short squeezed (because trading is not restricted by Robinhood) 3. Stock shoots up to $1000. Client made $600 Scenario 2: 1. Client buys share for $400 2. Robinhood restricts buying the shares (so the short squeeze doesn't happen) 3. Shares plunge to $50 because the short squeeze failed to happen (ie the hedge fund did not have t…

comboy is saying that the lottery ticket buyer is being kept from participating in a winning strat, which is what's happening to retail investors right now, which is the same thing you outlined. You're both saying the same thing. Not downvoting you btw.
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