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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

#411

Post by franklampard »

nrmitchi wrote: post #401
bobsmooth wrote: post #392

Earlier quoted context omitted.

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 w…

> float your risky position

Nobody is complaining Robinhood disabled naked calls/puts on volatile stocks.

How is not illegal for Robinhood to disable cash accounts from buying stocks?

Your cash is transferred and deposited. If the stock price crashed, it crashed, investors still own the stocks with their cash paid.

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

#412

Post by 015a »

krupan wrote: post #394
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…

“But, the deeper issue is the US financial system and its molasses speed of moving money around.” Sorry, I’m going to be That Guy here and point out that when people accuse Bitcoin of having slow transactions, this is what they should be comparing against, not Visa card transactions. Actual settled transactions. Bitcoin takes 10 minutes. US financial system takes days.

I do think, if more people knew the extent to which the US financial system is a house of cards, cryptocurrency would be even more popular. Not necessarily concerning fundamentals, as the US is still fundamentally strong. Primarily concerning the edges of the system and the institutions we interface with every day.

I know Robinhood, and other firms, are trying to downplay what happened yesterday (and is continuing to happen right now!). Its possible their version of the story is accurate. It feels more likely that its not the whole truth.

We were treading really close to a 2007-level market event yesterday, though not due to bad ratings, rather liquidity. It wasn't just robinhood that was impacted; robinhood and IB both said that they made the decision internally, but WeBull said they were instructed by their clearing house to cease trading, and even large firms like TDA started enforcing limits. It was very close to going systemic, and not because of bad fundamentals, not because of an economic downturn, all because an unprecedented number of Americans wanted to join in on the stock market they're entitled to join in on, but our financial institutions were not ready for it.

When you lay out the reality of our system; that money moves so slow that every single institution who wants to handle money, for nearly any purpose, needs a bank account billions upon billions of dollars large just to be able to move as fast as people expect the system to move, and if that bank account gets too low the problem near-instantly spreads to the next bank in line; the system is very fundamentally broken, and people need to demand change, because our financial system runs EVERYTHING.

Moreover; if WSB's theory on this is correct, and if these WSB stocks like GME/NOK/BB/etc don't reduce in value; we missed a meteor yesterday, but a second one is still coming. This isn't just about bankrupting a hedge fund. When the margin calls on these short positions start coming in over time, the price of these stocks continues to rise, and eventually, the current "diamond hands" (as WSB call them) will sell their shares. We're talking about billions of dollars here; that's a massive liquidity spike that our institutions are still not ready to handle. Granted, as always, its the IDIOTIC institutions who got us into this by taking out the INDEFENSIBLE short positions in the first place, but they're systemic; they know they can do whatever the hell they want and get away with it, because if they go down they take every American with them.

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

#413

Post by FabHK »

xur17 wrote: post #376
jkestner wrote: post #362

Earlier quoted context omitted.

It’s an SEC rule to guard against brokers going insolvent. Trades are not instant transactions so there’s a lot of credit being floated for days. Good thread explaining this, though still complex: https://mobile.twitter.com/KralcTrebor/status/13549526861652...

It feels like slow movement of money in our financial system causes a lot of these problems. Customer deposits take several days to settle (during which time Robinhood has to front the funds). Settlement of the stock trades / transfer of collateral to the DCC likely takes several days, etc.

The mismatch between the speed of trading and the speed of settling can under extreme circumstances cause problems, evidently.

> It feels like slow movement of money in our financial system causes a lot of these problems

I'd turn that around and say that the hyper fast trading causes a lot of these problems, and in particular creates more problems than it solves.

Introducing a Tobin Tax and replacing continuous trading with frequent auctions (maybe with stochastic end times, to limit sniping) would alleviate a lot of these problems, and put the rent-seeking HFT traders out of a job, while not impeding the important price discovery and capital allocation functions of the market much at all, I think.

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

#414

Post by nrmitchi »

franklampard wrote: post #411
nrmitchi wrote: post #401

Earlier quoted context omitted.

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 w…

> float your risky position Nobody is complaining Robinhood disabled naked calls/puts on volatile stocks. How is not illegal for Robinhood to disable cash accounts from buying stocks? Your cash is transferred and deposited. If the stock price crashed, it crashed, investors still own the stocks with their cash paid.

A large part of Robinhood's entire product is papering over the difference between a cash account and a margin account, and hiding the intracacies and timing of the underlying market.

> Your cash is transferred and deposited.

When you open a new account, and start a transfer from your bank, that is not instantaneous. "Cash" doesn't magically appear in Robinhoods' account. Until that deposit clears, you are effectively operating on margin.

If you recently sold something on Robinhood, and want to buy something else, "cash" isn't in your account yet, because that original sale hasn't settled. Robinhood is papering over that as well. This one in particular I'm not saying they shouldn't paper over, since I believe it's less of a risk.

But each of these "Robinhood covering your unsettled positions" adds a little bit of risk. This risk adds up.

The suggestion of Robinhood only letting people trade with cash that is fully settled into their accounts would completely swap the underlying paradigm of Robinhood's product.

Even so, new trades you want to make would have to settle. And as discussed elsewhere, Robinhood has to funds and deposits to cover potential risk associated with those trades until they settle.

There is a lot under the hood that is abstracted away by Robinhood, and now those intricacies are leaking out (and completely mis-understood, because one of the premises of Robinhood's product is that you shouldn't have to understand, or even know about, them)

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

#415

Post by slfnflctd »

nend wrote: post #375
slfnflctd wrote: post #327

Earlier quoted context omitted.

> 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…

>I thought fundamentals mattered. Turns out they don't right now. Fundamentals never matter "right now". Fundamentals are about long-term investing and growing money over time. Day trading is about speculation, not investing. WallstreetBETS has nothing to do with market fundamentals or investing money. This is the point of the Keynes quote "The Markets Can Remain Irrational Longer Than You Can Remain Solvent" - Marke…

> Fundamentals are about long-term investing and growing money over time [...] Day trading is about speculation

What you call 'day trading' has turned into week trading, has turned into multiple-month trading, and I would argue even beyond a year now in a lot of cases. Plenty of stocks have been pumped far beyond what their 'fundamentals' would justify. In some cases, that has changed the trajectory of companies and even entire sectors.

> in the long term, GME's value hasn't changed

This is entirely debatable. The investors just changed it, and new people are on the board who could potentially turn it into an eSports empire, or the next Valve, or who knows what else. Not at all likely, I know, but money changes things and there is some amount of 'true believer' investment happening, like we saw with Tesla.

Honestly, I don't like all this volatility one bit. I am increasingly concerned about not ending up homeless when I'm elderly. But the fact is, the market appears to be changing, and so-called 'retail investors' may be gaining new prominence in the greater order of things. Valuations based on hopes for what could happen 30 years out instead of how much paper profits got jacked up over a 3-month period. It's scary and I don't like it. But who knows, in the long run it could be a good thing? I don't think you, or I, or anyone else can say from here.

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

#416

Post by [deleted] »

IG_Semmelweiss wrote: post #403
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…

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 ca…

[deleted]

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

#417

Post by ivalm »

vmception wrote: post #142
astrange wrote: post #126

Earlier quoted context omitted.

Sanction them for what? What they did today was caused by following the rules. They couldn’t do anything else. If they did restricted selling it would be “fair” but it would be illegal because only regulators can halt sales.

Ok, its a good question. I think outside of specific sanction any resulting regulation should be a comprehensive restriction on payment for order flow, as part of the already ongoing populist trend of valuing data and considering it users property with its own property protections.

But payment of order flow directly benefits retail traders. They get better spreads because of it. Why would you limit that?

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

#418

Post by Gaelan »

briandear wrote: post #359
Gaelan wrote: post #309

Earlier quoted context omitted.

I (US citizen, freshman at a UK university) tried to set up a Monzo account a few months ago. They refused to give me an account, and refused (both in their app and over email) to tell me why. Left a bad taste in my mouth. Ended up going with Nationwide, who are a bit behind tech-wise (they do this weird thing where they ask for 3 digits of a 6-digit PIN I'm supposed to memorize, which seems far less secure than a lo…

Monzo refused because of FATCA. That happens with banks outside the US to “US persons” all the time. They should have told you that, but you can blame FATCA for the cause (passed during the first two years of the Obama administration.)

I'd be surprised if that were the case. Their sign up path seemed to know about and handle US citizens (asked for my SSN), and I can't imagine they'd go to that trouble if they were just going to silently and mysteriously deny me.

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

#419

Post by 015a »

erehweb wrote: post #405
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…

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.

This is not a Robinhood thing; every single brokerage does this. Robinhood is a bit unique with their instant bank deposits feature, that's something traditional banks don't generally do, but its really just a minor extension of this same idea.

Robinhood is accessible, so it has serviced the bulk of the retail investor spike that happened this week. Additionally, I expect that their net liquidity is far, far lower than a traditional bank, just given their age and diversification of business. They needed money, so they went to JP Morgan. Plenty of people also trade with JP Morgan, but (and I can't believe I'm saying this) JP Morgan actually, to some degree, knows what the fuck its doing. Robinhood doesn't; Robinhood is basically a teenager who just got a new car, wanted to show off to some friends, crashed it, and is now crying on the phone to daddy.

Which, to be fair, is exactly the same thing every bank had to do in 2007, except daddy was the US Government.

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

#420

Post by ryandrake »

cashewchoo wrote: post #344
rattray wrote: post #333

Earlier quoted context omitted.

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 f…

It's amazing that we still accept financial transactions taking days to actually "clear." Surely there's a market opportunity for someone to invent a way to do these anti-money-laundering things without delaying transactions. It's astounding that in 2021, it takes multiple days to increment a number in one database whilst decrementing that number in another database.
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