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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

#401

Post by nrmitchi »

bobsmooth wrote: post #392
nrmitchi wrote: post #387

Earlier quoted context omitted.

They're also a joke because they are, as far as I'm concerned, not a "brokerage". They are an app designed to convince people that they understand how to trade stocks, in order to sell them stocks. A real brokerage should, in my opinion, and some sort of duty to act in the best interest of its clients. A brokerage should not have huge backlash because its users got margin called, and those users didn't even know what…

Getting margin called is one thing. Being prevented from buying a stock is something completely different.

Being prevented from being able to buy a stock if the brokerage can not afford to legally sell it to you is the expected outcome. If you want to argue that Robinhood should have been bigger, and thus had more flexibility and been able to handle this, sure. Why not. But then you're complaining that the company you're dealing with isn't big enough to float your risky position.

Would you have preferred the alternative where Robinhood risks exploding, has no liquidity, triggers a rush where everyone tries to get their stock out of Robinhood at the same time, fails, and every Robinhood customer is stuck waiting on SPIC for some undetermined amount of time?

Or would you have preferred the alternative where Robinhood didn't allow you to sell either? And then it the stock went down during that time, you can't try to get out?

Robinhood is a shitty company for a lot of reasons, but preventing themselves from being over-extended into bankruptcy isn't really one of those reasons.

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

#402

Post by nrmitchi »

hnrodey wrote: post #398
015a wrote: post #386

Earlier quoted context omitted.

That's an accurate enough analogy. When you sell a stock on Robinhood, it takes ~2 days to "clear" the transaction. So, Robinhood credits your account, but Robinhood doesn't see that money for 2 days. They don't allow you to withdraw the money from Robinhood until its cleared, but you can purchase other stocks with the money, and if you do that, Robinhood now needs to send something to the seller. All brokerages, and…

Just my two cents. I created a Robinhood account on Wednesday evening and transferred $1000 via Plaid. My account is still not active and AFAIK that $1000 is in limbo. The app tells me "We're reviewing your application and your deposit is pending. Application approval may be delayed. We'll notify you when you can begin trading."

IIRC this is a new thing in order to limit exposure to the positions above.

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

#403

Post by IG_Semmelweiss »

015a wrote: post #386
posix_compliant wrote: post #372

Earlier quoted context omitted.

So you’re saying the issue is “what if the grocery goes insolvent before it can hand you the milk, but after you’ve paid”? I’m still not understanding how robinhood lost money in the first place.

That's an accurate enough analogy. When you sell a stock on Robinhood, it takes ~2 days to "clear" the transaction. So, Robinhood credits your account, but Robinhood doesn't see that money for 2 days. They don't allow you to withdraw the money from Robinhood until its cleared, but you can purchase other stocks with the money, and if you do that, Robinhood now needs to send something to the seller. All brokerages, and…

These are 2 different things

(1) Credit risk - this is what you describe

(2) Counterparty risk - this is collateral. This is different.

The 2 are interlinked insofar that the counterparty (2) may react to the perceived credit risk (1) , however these are 2 separate risks at play.

** To go back to the milkman, the correct analogy would be:

Your son wants milk. You go to the farmer's market - but you can't hand over cash to farmer. Remember, his milk is spoiling, there's a huge line to buy, and he just doesn't have time to count bills, square exact change, or screen for potential fake bills. He only accepts bank transfers, and you dont have a bank acct. So you buy milk on credit, and agree to settle when he's not too busy (as you have always done).

Now, the farmer has been noticing you are buying a lot of milk for your son, and the empty milk bottles you left with him on deposit ("float") are not sufficient to carry all the milk you are buying....so he's now asking for many more bottles, which are expensive. He refuses cash collateral - he will only take more bottles, because he's concerned about all the cash you seem to be handling recently.

You don't have extra cash of your own, for bottles. You can't commingle funds. So therefore, you stop taking milk requests from son...and the other 10M children

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

#404

Post by TeMPOraL »

kryogen1c wrote: post #400
TeMPOraL wrote: post #326

Earlier quoted context omitted.

It starts with PR. If there was one moment for a company to be brutally honest, it was for Robin Hood yesterday. They didn't get in front of this story, they didn't explain the issue in detail - instead, they blocked the trades, posted a bullshit information-free blogpost, and have their CEO doing rounds on the news smiling and spewing zero-information noise. This isn't a business model problem, it's customer relatio…

> They screwed it up big time. because people are mad at them? you think they shouldve gone public during a high-volume, high-volatility feeding frenzy with tens of billions flying around and said "we're insolvent, but its ok we're taking action to recover our position"? it looks to me like their actions were totally rational and at least a good-case scenario, if not best-case. platforms have been deleted in the past…

> you think they shouldve gone public during a high-volume, high-volatility feeding frenzy with tens of billions flying around and said "we're insolvent, but its ok we're taking action to recover our position"?

Sure, why not? Everyone knows the situation is extremely unusual and not indicative of RH's ordinary performance. This way, they'd stay on the friendly side of everyone.

> its like saying theres no technical problem, but people think there is, so the company has to not only continue providing their free services but also make their users feel good while doing so.

I'm not saying they should've allowed people to continue buying GME and other meme stocks. I'm saying they should've honestly communicated the actual reasons behind their decision.

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

#405

Post by erehweb »

015a wrote: post #386
posix_compliant wrote: post #372

Earlier quoted context omitted.

So you’re saying the issue is “what if the grocery goes insolvent before it can hand you the milk, but after you’ve paid”? I’m still not understanding how robinhood lost money in the first place.

That's an accurate enough analogy. When you sell a stock on Robinhood, it takes ~2 days to "clear" the transaction. So, Robinhood credits your account, but Robinhood doesn't see that money for 2 days. They don't allow you to withdraw the money from Robinhood until its cleared, but you can purchase other stocks with the money, and if you do that, Robinhood now needs to send something to the seller. All brokerages, and…

So if RH would just make you wait 4 days before you could trade again, then there wouldn't be any problem? But then it would be a lot less attractive / addictive app.

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

#406

Post by boatsie »

tempsy wrote: post #13

The CEO just gave 3 interviews tonight and denied this was at all related to liquidity issues for the company in all 3 when pressed. Terrible look.

"We have no liquidity issues. We just need more liquidity." Reminds me of "depends on what your definition of 'is' is".

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

#407

Post by lukeramsden »

IG_Semmelweiss wrote: post #352
cashewchoo wrote: post #341

Earlier quoted context omitted.

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?

even if you self clear , you are still a broker clearer and you end up touching the DTCC. This is exactly what Robinhood is doing too. This twitter user explains, although it gets quite technical: https://mobile.twitter.com/wallstcynic/status/13550134381546... Look at the tweet at 7:41PM EST. " But if RH takes in 500m of new money and 300m buys GME, then at minimum they are looking at posting 30m+ from just that expo…

Last I heard, the DTCC have raised collateral requirements on GME from 1-3% to 100%. Seriously. That's the real reason clearing houses stopped accepting new orders on GME from brokers.

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

#408

Post by lukeramsden »

loycombinate wrote: post #138

So, every broker is on margin with DDTC, they don’t have to have 100pct cash for the dollar amount of the buy orders they send to DDTC, as long as they will have the cash in 2 day. Some brokers like fidelity have hoards of 401k money and more likely to have 100pct cash for their orders. Trading brokers like IBKR RH keeps the minimum possible amount of cash with DDTC, and their automated systems adjusted up the minimu…

So, every broker is on margin with DDTC, they don’t have to have 100pct cash for the dollar amount of the buy orders they send to DDTC, as long as they will have the cash in 2 day.

I'm assuming you mean the DTCC? This actually isn't true now, as the DTCC have reportedly upped their margin requirements for GME orders to *100%*. That's according to the CEO of WeBull. That's why these clearing houses, and by extension brokers, cannot afford to sell GME stock to retail traders.

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

#409

Post by gruez »

shadowgovt wrote: post #396
neximo64 wrote: post #124

Earlier quoted context omitted.

Your bank actually has to lie to you to remain solvent. All banks do. The Central Bank also encourage it. Last year you saw both that banks were 'forced' to withhold dividends and they were perfectly capitalised. Both cant be true of course. If they hide it from you your money and everyones money is safe. If they tell the truth everyone loses, so it is actually the best outcome for you and everyone else. The fraction…

Lying in what sense?

Fractional reserve.

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

#410

Post by LandR »

Wildgoose wrote: post #381
LandR wrote: post #324

Earlier quoted context omitted.

Yeah I forgot about a credit card payment that was due a number of years ago, before I had online banking. I went in 2 days before it was due and paid it cash. I still got a late penalty added brcause cash takes three days to clear. A bill under £2 and got hit with a fee of £20

In the UK, cash paid at the institution in question clears the same day. If bundled with a cheque (rather than as two separate transactions) it will clear at the same time as the cheque. I had something similar happen to me many years ago. I took ATM cash from another account, plus what I had in my house and wallet, to make up the amount that an auto-paid credit card bill due on that same day would have sent me overd…

The most absurd thing was that the bank, RBOS, callee me few days after about the late fee asking me if i was having money problems... It was a bill under £2 that had just slipped my mind. If they had checked any of my other accounts they would have seen that i had about £50k with them.. . But no a £2 bill has them calling me almost sounding like they were shaming me over an inconsequential amount of money!
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