Re:Robinhood is said to draw on bank credit lines amid tumult
by TeMPOraL on Thursday January 28, 2021 @07:38PM
(#25951897)
I don't know anything about stock trading, but I think I can piece an idea from some HN comments I've seen earlier.
The exchange between A and B isn't direct, or instantaneous. The actual money transfer takes days, and there are parties in between that make it possible to pretend it's immediate - much like with insta-transfers of money between the banks. Apparently, these parties are on the hook for any money that is "in flight", so they need to have a substantial buffer.
Once you get this many people trading on a stock this volatile, apparently the buffer in the middle isn't sufficient to cover the risk, so the parties in the middle stop accepting these trades.
The exchange between A and B isn't direct, or instantaneous. The actual money transfer takes days, and there are parties in between that make it possible to pretend it's immediate - much like with insta-transfers of money between the banks. Apparently, these parties are on the hook for any money that is "in flight", so they need to have a substantial buffer.
Once you get this many people trading on a stock this volatile, apparently the buffer in the middle isn't sufficient to cover the risk, so the parties in the middle stop accepting these trades.
EDIT: 'imladyboy quotes the source from which I pieced most of the interpretation above. See also 'JumpCrisscross here: https://news.ycombinator.com/item?id=25951475.