Did you not think through the implications of the course you propose? If they froze buying and selling, the stock would still be sold elsewhere. The price would crash, then people would be outraged that they weren't allowed to sell.

"Robinhood sold me a stock that was part of a huge bubble, and then they wouldn't let me sell it"

It's a great example but if you understood options you would realize it's still a huge problem. I had quite a few call options on E*Trade when they froze buying. They sold me contracts and 5 minutes later made it impossible for the contracts to not decrease in value.

They could have simply let people take the risk and that's that. What happens when I buy stock and the price goes down and I lose? Does any platform really care? Nope. Why would they care now? I'd understand if it was only margin trading but why restrict a chance of (winning/losing) whenever they need to?

They always had a huge lever but it was not to be used so soon to help their friends. I now hope it becomes deserted. At least I closed my own account after this.

> Why would they care now?

Because they need to post collateral for every trade that they execute but which hasn't yet settled, and they don't have enough collateral to sustain the concentrated trading volumes they've been processing.

How was the volume of GME enough to cause this problem? Today was around 60 million. Aren't they usually executing billions of trades across the market every day?

If I understand it correctly, RH is making funds available for trading right away, rather than making users wait until T+2 to be able to reinvest those funds. They can't instantly unilaterally change their policies to make users wait until T+2 to reinvest those funds. If you jump into and out of a 10k USD position 5 times today, that eats into almost 50k of RH's collateral with clearing houses for the next 2 days. A very small number of stocks probably account for a vast vast majority of this rapid flipping on their platform, so preventing expanding positions in that small number of names gets rid of the vast majority of the problem. Also, the most volatile stocks have the highest margin requirements, doubly compounding the issues with GME trading.

Or, maybe I'm misunderstanding the issue. Maybe it's fully due to the higher clearing house margin requirements for the higher volatility stocks.

> Aren't they usually executing billions of trades across the market every day?

Clearing collateral requirements vary between 2 and 100%. That means $10bn of trades in one name can require the same amount of capital as $200mm of trades in another.

> they’ve been processing

... and making money on every trade, win or lose. Important not to forget that.

this literally happened last march. they had an outage as the market tanked.

Then both ideas are terrible and they should have done neither of them.

> They could have just completely frozen trades of these volatile stocks then?

I assume Robinhood also blocked shorting GME. As such, it wasn't blocking buying per se. It was blocking the opening of new positions, long or short.

That's very different from blocking someone from exiting a position that you sold them.

Most brokers did not allow you to short because there were no shorts to borrow for that trade. This is common for stocks in high demand for shorts, especially one that is 140% borrowed. Unless you're a professional trader and have access to the best brokers, you couldn't short GME even if you wanted to (this is common, and why professionals pay big $ to have access to high demand shorts).

I couldn't buy and the stock went up = theoretical loss

I couldn't sell and the stock went down = real loss

Generally you are only liable for actual losses in court. So stopping the purchase of GME comes with little liability while stopping the sale could open them up to lots of liability.

But blocking buying on the broker with the most trades = price falls down = real loss?

You're still going after theoretic damages. How do you prove that Robinhood stopping trading drove the price down and by how much?

It's simple economics, if you block demand but keep constant supply (in this case increase), the price will go down.

Yes, that's the theory behind the theoretical loss. That's different from "I tried to sell at $200, you didn't let me, and now I can only sell for $100". In that case I am out an actual $100 that is directly tied to your actions.

Everything can be said to be "theoretical". Theoretically you would have found a buyer had you tried to sell at 200, but nothing guarantees it

It is far far worse to be prevented from liquidating a position, than it is to be prevented from buying.

They can't freeze all trades since they are not the NYSE, so trading will still happen, just not for any of their customers.

On an individual basis yes you can make that argument. On the basis of market manipulation, it is very powerful to reduce the demand side by over 50%, while keeping the market open so that other people who want to buy at a lower price can do so. This is what happened. Don’t gaslight yourself.

I am not an expert obviously. But is this generally true in most situations?

It just seems like maybe in this specific once-in-a-lifetime situation, maybe this doesn't apply? The decision to freeze all trades seems more "neutral" than freezing just buying which perceptively seems to favor short sellers?

It's not comparable. RH stopped people turning cash into GME, worst case is they've missed out on a pump and dump but their wealth is still in tact. If they stopped people turning GME into cash, then (1) this does nothing to help the former party, (2) you're forcing these customers to possibly lose all their wealth when the GME price starts going down and you've blocked them from closing their position.

> they are not the NYSE

That's the point: they are not, so they shouldn't act like it.

You have to allow selling or else you risk forcing your customers to hold a stock while its price is dropping. Robinhood customers would be even more pissed about that.

I'm going to start spreading this around. It's a comment by someone else who points to an interview of the WeBull CEO and why they had issues. It's pretty clear that this is a process issue, not necessarily a RobinHood is evil issue.

https://news.ycombinator.com/item?id=25950191

> Instead, they only blocked out buying these stocks and still allowed selling.

That isn't the case, they inhibited opening new positions but not closing them.

So if you were short you could but to close.

This is why I don't get in a of this. Is there any precedence of only allowing selling before? It couldn't even accomplish their goals of protecting investors since that forces a crash of their investments

You're essentially saying that Robinhood should have forced its users to hold an insanely volatile stock, just to be "fair" to the people who wanted to keep riding a pump and dump.

Anything that prevents a retail investor from making money is evil or illegal according to Reddit and, sadly, HN.

You can make money as a retail investor. Just avoid meme stocks and stick with more stable titles.

This is what upsets me the most about what's been happening in recent days. There is now a popular narrative that the market is rigged against the little guy, but as a little guy who's been investing for about a decade now I know this couldn't be further from the truth.

The only reason this situation with GME happened is because no one person has power to control what investor decide to buy and sell (with this perhaps being one of the few exceptions I've ever come across). I don't really understand where this claim that retail investors can't take the opposite side of a hedgefund's trade is coming from. Hedgefunds that are over-levered go bankrupt all the time because retail investors along with professionals take the other side of the trade. It's worth remember a lot of hedge funds lost money shorting TSLA this last year too and that trade was largely retail driven.

I also think a lot of people are being really spiteful. I understand why hedgefunds get a bad rep, especially after all that happened during the GFC, but most hedgefunds are doing honest business. I don't really understand why Melvin Capital deserves to be put out of business and for their employees to lose their jobs because of what some other hedgefunds have done in the past.

Wait “most hedge funds are doing honest business”? Who are we talking about and what honest business is that? Front running trades while market-making, privatizing the profits and distributing the losses if they fail? Networking with other billionaires on insider information? They are parasitic opportunists.

> Front running trades while market-making

You don't have to use a PFOF flow broker – in-fact I'd advise against it. But it's kind of a win-win. You get to make "free" trades and the market makers get to make a couple of cents. PFOF is what has enabled this boom in retail trading. The biggest benefices have arguably been retail traders.

Also not all hedge funds are market makers.

> privatizing the profits and distributing the losses if they fail

What are you referring to exactly? I never know what people are referring to when they say this because hedge funds don't generally get bailed out by the government, although they do get bailed out by other companies from time to time.

Perhaps you're referring to the banks that got bailed out during the GFC? Or hedge funds taking small business loans from the government in 2020? But in that case US citizens got bailed out last year too in the form of increased unemployment benefits, stimulus checks and mortgage forbearance.

But like I said, I don't really understand why people are blaming random hedgefunds for the role some hedgefunds played in the GFC.

> Networking with other billionaires on insider information?

Right, but this is illegal. There is regulation to prevent this. You're free to do this too if you're willing to risk getting caught. I see retail investors post about their inside trades all the time on Reddit.

What would the implications have been if they prevented people who got in at the top from selling?

So the argument is that if they just froze trades (both buying and selling), then people who own many GME shares and want to sell would not be able to and there would be a subsequent backlash? Maybe? I am trying to compare the lesser of two evils here and it still seems like they made a poor choice.

If they block selling then people can't cash out their positions and are forced to hold a volatile stock against their will.

That is much worse than not being allowed to buy the stock.

Exactly, stopping buying prevents people from (potentially) making money by buying the stock low, whereas stopping selling (potentially) prevents people from losing money on the stock they already own, from the platform which they bought it.

I can't imagine the backlash if the completely froze the stocks while the market kept going.

But preventing buys on the broker with the most trades of these stocks directly leads to a price drop; this leads to loss for every current holder of the stock.

Stocks are frozen when they raise or lower too quickly commonly.

My understanding is that is usually done by the stock market itself, not a trading firm. The implications of the two seem pretty different.