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A comment on Robinhood is limiting purchases of stocks: AMC, Blackberry, Nokia, and GameStop. Parent comment

Re:Robinhood is limiting purchases of stocks: AMC, Blackberr... by whimsicalism on Thursday January 28, 2021 @03:49PM (#25948977)
They immediately hedge it. If the market for GME is "one-way" (it's not, people are shorting), they might also hedge the sale by buying more exotic financial instruments and correlates of the GME price.

> they say "no, we're not taking on any more risk" and communicate that to Robin Hood.

Maybe, although they would probably do that when their ability to hedge started breaking down, not when they'd already acquired massive short positions.

More likely, to me, is that they would just increase the bid-ask price spread continuously as their ability to hedge degrades.

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Re:Robinhood is limiting purchases of stocks: AMC, Blackberr... by JumpCrisscross on Thursday January 28, 2021 @04:54PM (#25949906)
> They immediately hedge it

This assumes continuous liquidity. Dangerous assumption to make in choppy markets.

It is not uncommon for markets to gap up or down discontinuously. You look at the market and see bid 899 at 901, buy some shares for 898, offer them at 890 and find the market is now 125 at 901.

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