Perhaps you can help me understand something.

In the absence of margin trading, if I deposit $100 of cash at my brokerage, then I order my broker to buy $100 worth of Stock A, how does credit and the possibility of bankruptcy enter into the transaction at all?

After all, if I give my kid $5 and send him to the store to buy some milk, he doesn't need to find 'liquidity' or a 'credit line' or risk bankruptcy.

You cannot use customer funds to cover dtcc collateral terms.

Your milk example does not work, because you are not settling up the milk buy 2 days after. You settle your milk purchase on the spot.

I’m still not understanding how robinhood lost money in the first place.

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 the clearing houses they work with if they don't self-clear (RH, IB, WeBull, etc do not self-clear; bigger banks do), maintain a level of "float" to handle these payments; its like grease which allows the system to move faster, and the bigger these pools of money, the less risk there is.

Robinhood is the #1 app on the App Store right now. EVERYONE is getting in on this. Many of these users likely joined with an invite code, and Robinhood will give out two random shares of stocks for each of these users ($$). After they're in the app, they're probably using the Instant Deposits feature to trade on up-to $1000 they've started transferring but which hasn't cleared yet (pressure on the float). Many of these users are, in WSB terminology, paper hands; they bought GME @ 250, its at 320 now, they want their gains, so they sell immediately; more pressure on the float.

If that float hits zero, that's basically like, imagine your company's bank account hitting zero, its payday (because every single hour of every day is payday for a brokerage), and you have 50 million employees. People would sell stocks, and the number in their account wouldn't go up. In fact, people couldn't even buy or sell stocks, because that float is used to pay fees on every transaction to their clearing house. Now, people are scared; their faith in robinhood has been shook, and they want out. So, they try to sell stocks; they can't. They're angry. If they have settled funds, they pull those out, which just compounds the problem because now their balance sheets start looking weaker and weaker, which makes access to emergency credit lines harder. Basically, they would implode irrevocably. Even the hint of a liquidity crisis is enough to tarnish a firm's reputation.

IMO, I think the biggest driver of this issue for Robinhood is their instant deposits functionality. That feature is insane, and in market runs like this, deadly. Robinhood hasn't actually "lost" money (well, not enough to cause a liquidity crisis); its just the problem of not having enough money right right now to pay people who need to be paid.

But, the deeper issue is the US financial system and its molasses speed of moving money around. The Fed is making strides to improve this, but it will take a decade or more before we see real change.

(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

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 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.

Of course credit systems have their own problems, like debt growing so large that it's impossible to pay back. But usually a nice reset does wonders.

Since credit systems and money is created by governments, they have the power to do such resets and have done so in the past many times in the last 5000+ years.

If the credit systems collapse into a cryptocurrency hard money world, there will be a new emergence of desperate people, slavery, and war.

Credit systems are not created by the government. Sure, the government is the biggest player, but at the philosophical level, credit systems are created by anyone who has an asset but doesn't need it right now.

The bigger thing that crypto does actively do away with is actively managed monetary policy. The populace hates on the people in power (banks, funds, government) for their quest for wealth and power, but for all the wrong that happens, monetary policy has been the single biggest driver in providing creature comforts and a modern lifestyle for the average citizen of the planet.

There absolutely is a substrate of "holy shit nothing is actually anything" at the very core of our economy. We print money to pay off loans given to us by other countries bought with their printed money. Nothing actually is anything. But, computers aren't cool with that; there is very real, hard math in the deepest parts of cryptocurrencies. You can take one of two sides in this argument, and I'm not sure either is absolutely correct (partly because, I'm not even sure there is a definition for was "correct" means in this context): Either you believe that substrate should be hard math, and modern economics is a farce, or that you believe monetary policy is the only way to ascend an economy beyond trade and barter, that we need men in suits at the top pulling levers and twisting dials to keep this machine running another day.

Maybe its alright that nothing is actually anything, and it can stay that way forever, chasing infinite growth as we expand into the cosmos. Or, then, maybe someone hacks our computer and changes the value of the Blemfark from One of its itself to Zero of itself.

Here's what I do know; whether or not it would be better, people seem to increasingly desire less top-level control and less delegation of so much power to wall street firms. Crypto is going to continue to get more and more popular, even if its against the best interests of the people, because our government and wall street underestimated how much influence the 300 million people that aren't them actually have. That's the cost of democracy and a free society; it sometimes takes the wrong path.

I'm sure there are crypto systems that create this kind of credit, but "lending out your bitcoin to someone" is very different than how Banks create credit.

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."

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.

Also, it should probably exist somewhere a bit more first-class than buried in an HN thread, because it's just unbelievably educational.

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 exposure at NSCC. They cannot use client money - RH has to use their own resources to post. And if GME stock drops, RH has to post the loss pre-settlement."

Huh? I don't understand this. What do they have to hold and why?

> 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.

https://en.wikipedia.org/wiki/Tobin_tax

EDIT to add: Appropriately enough, Wikipedia says:

> Another term for these broader tax schemes is Robin Hood tax, due to tax revenues from the (presumably richer) speculator funding general revenue (of whom the primary beneficiaries are less wealthy)

As a user, I'd love to be able to deposit and withdraw stablecoins at banks - this would enable essentially instantaneous transfers, and provide an interface that anyone (including non-banks) could interface with.

[0]: https://www.zerohedge.com/markets/cash-strapped-robinhood-sc...

The Instant means any security sold you can immediately use that cash.

Normally you can't go that. You have to wait 3 days for it to settle in the clearing House. The Instant accounts are using margin to make the cash instantly available.

So in Robinhood's case if there are many people depositing dollars to buy stock then that could be their reason or excuse to not have funds available for trading. Just a guess.

A bill under £2 and got hit with a fee of £20

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 overdrawn.

I avoided the overdraft penalties.

It must be its own funds. And the requirement of funds to be covering (collateral) can change on them with very little warning

There are some other items, but that's the basic idea - full details are here: https://dtcc.com/-/media/Files/Downloads/legal/policy-and-co...

If you want to dive further i recommend this thread :

https://mobile.twitter.com/KralcTrebor/status/13549526861652...

[0]: https://www.zerohedge.com/markets/cash-strapped-robinhood-sc...

So, anyway, for lots of reasons, things that users think should be instant, aren't. And that's really bad UX, especially for a platform that depends so much on emotional stuff: "deposit $200 bucks and buy 3 shares of X, leaving you with a $30 cash deposit which RH can then earn interest on" is probably how a large amount of RH's balances come into being. That breaks if it's going to be a 1-day gap between someone depositing their money and then buying the shares.

So everyone papers over holes like this with margin.

I know for a fact my bank lies. They've been fined hundreds of millions of dollars for money laundering (it's HSBC). A few years ago I looked in to moving to a more honest bank, but I couldn't find one that also met basic criteria like having access to cash points in the UK and having a half decent mobile banking app. Literally every major bank that operates in the UK has stories of doing frankly awful things.

Since then I've joined Monzo, who do seem to be genuinely above board, but finding an honest financial institution is really hard.

[0] https://www.bbc.co.uk/programmes/articles/2qS0HM6nBkcPMx0W8t...

[1] https://www.resolver.co.uk/freeadvice/companies/monzo-compla...

Absolutely demented. Apart from that they refused to send me a machine-readable copy of their response to a DPA request for my records and the support team behind their app literally ghosted me when I kept politely pointing out the inconsistencies in their arguments.

Bonus: when I complained they used someone else's name when responding to it. When I complained again they sent me their response to _a totally different person's complaint about a totally different thing_.

Eventually I went back to First Direct (which is owned by HSBC). Avoid Monzo like the plague.

This is true of basically any financial institution.

Of course, it is a problem that Monzo had a bug that caused your account to get flagged for this.

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 long random password in my password manager), but generally have been great. I tried to sign up for their student account, got told no and redirected to their no-credit-check account with no issues. (That's probably also an indication of what went wrong with Monzo.)

I "bank" with them. Sensible. Reliable. Well run. That's preferable to the latest flashy technology when you are talking about people's hard-earned and long-saved money.

1. revolut - these guys are complete jokers. closed after being asked to provide the proof of funding 3 times in 3 months.

2. hsbc/first direct - somewhat decent. but i only use it to top up my other accounts. i try to avoid them, as they're just too big.

3. starling - simple, no-nonsense banking from a startup.

4. revolut business - had my account closed down by the "bank" because they didn't want my business. no reasons given. again, complete jokers.

5. freetrade - decent investing platform, but very very amateurish.

6. saxo bank - professional investing. they're a huge company, never had issues with them. and yes, they of course accept me buying gme and the like, plus they also support options. unfortunately it costs. a lot.

7. metro bank - what can i say. it feels like a 20th century bank with a nice app. had many issues with them, including a transfer that went missing for 2 weeks, and a EUR account that forced me to go to their branch every time i wanted to do a transfer.

8. ing bank nv - depending on the territory you're opening the account, they might be either really bad or somewhat bad.

9. rabobank - bank was constantly getting hacked and all account ops were blocked while the hacking was happening. also, the hackers managed to empty my account and the bank representative had to use a special card to withdraw some funds so that i could continue living.

later edit:

10. transferwise - very slick, minimal fees, used them from before they were a bank. no issues so far.

11. monzo - i'm not in their target market unfortunately. their features are not useful to me.

Starling, however, has been magic. I swapped my primary banking over to them and the only issue I've had is their dislike of rooted phones. That's only a minor inconvenience every few months when I forget to upgrade Magisk before the Starling app, though.

Transferwise I've used many times to transfer money for larger purchases in Europe. No complaints, but haven't tried the banking side of it.

I'm an investor in Revolut due to their aggressive growth strategy, but I wouldn't use them personally.

As for Monzo, I like their app but missing features like being able to view your full CVV number in app, or link the app to all your other bank accounts on the free tier, basically prevent me from using them as my primary bank

I use them for some of my overseas customers, my only challenge with them is the limited number of currencies they support e.g. had to open a Revolut account to get payment from a Canadian customer

With a bank you have up to £85,000 insured and guaranteed e.g. if the bank fails

Customer support, features roll out, chargebacks etc - all way better experience than the local banks.

They singlehandedly forced all the banks in my country to implement apple pay / google wallet. For years nobody bothered, the moment Revolut entered the market, with apple pay support, the banks scrambled to add it themselves.

One time I even had my card stolen while traveling abroad - got a new card within two days, global delivery. I was very pleasantly surprised.

But I also understand the risks and don’t really use them for long term asset management for now. Just as a front for all of my expenses - their analytics are just awesome.

Edit: I'd like to add that revolut was very helpful after most of my valuables were stolen in 2019. While my other bank took three weeks to deliver a new debit card, a virtual card issued by revolut worked immediately via NFC.

and again, for me revolut was a disaster and i will not recommend them.

for trading/investments it really depends on your situation and location.

(for example: some countries offer 0% taxes on capital gains for trading if done using special products, but not all available platforms will have them...)

If you can find a cooperative bank, I would definitely advised that you try them.

Often their loan rates are generous, their fees low, and perhaps most importantly, they do not join into the blacklists that commercial banks use which prevent people from ever using a bank at all.

If you can qualify for a credit union I would definitely recommend that you try them.

I worked in HSBC for 6 months a few months and their IT systems are scary. It's a patchwork of various international banking systems where each one has different views and funding.

They are completely incapable of coordinating such a political landscape. I made some cash and ran away from that trainwreck as fast as I could.

There are lots of consultancies embedded making good money out of the confusion.

For those in Germany I recommend GLS bank. They have an ethical charter on whom they invest in and their loans are fully backed.

Starling is the only challenger bank that's profitable ATM (and it's only just profitable)

I sense a common theme coming.

Really diversifying your funds across multiple banks is a wise move. I’ve got Halifax, NatWest, Santander and HSBC accounts still.

This is the problem though. I'm still with HSBC because, while HSBC is pretty terrible, the rest of the banks are also terrible.

On the flip side one of the heirs to the Santander empire tried to smuggle a Picasso out of Spain on his yacht, which is kind of cool... https://news.yahoo.com/santander-heir-gets-44m-fine-20351628...

https://www.reuters.com/article/us-santanderbank-mortgages-i...

Why refusing to loan money to low-income borrowers is supposed to be discrimination?

If someone has minimal income they are far less likely to repay loan, why this is supposed to be indicator of some discrimination?

If someone earn 30k per year and someone earns 3000k per year then it is not surprising that loan of 200k would be far more likely given to person with higher income.

Banks are typically extremely awful, but why that specific part is supposed be indicator of something wrong? And it seems likely that other statistics mentioned are result of that.

Calling their app "decent" is charitable to say the least.

The only good part is the call center, where operators are actively trying to be helpful.

https://www.triodos.co.uk/

> The bank was founded as an anthroposophical initiative and continues to honor the work of Rudolf Steiner as the inspiration for its approach to banking.

As far as I know they don't routinely bury cow horns to magically improve returns.

For our personal and business banking in UK and NL, we chose:

* UK personal banking - Nationwide for primary current account, Tridos UK as secondary. Left HSBC because service was terrible and they kept on declining our card txns.

* UK business banking - Tried Tide but moved to Starling on discovering Tide didn't support joint account holders. With Starling also have a EUR account. It works seamlessly with the only disadvantage that transfers from the Starling EUR account to NL banks are overnight.

* NL personal banking - Triodos NL, after years with ABN Amro. Triodos is friendly, sustainability focus.

* NL business banking - Knab, which has been good so far. Wanted to use Triodos NL but there is a two month backlog approving new business customers.

Starlink is the space internet from Musk

Of course I meant Starling, they were the first challenger bank to offer business accounts as well and I’m very happy so far.

Only takes them an hour or so to approve it for you, but it gets pretty old having to do it 3-5x per week.

Couldn't you turn off autocomplete or check what you/it wrote before you hit "reply" button?

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 fractional reserve system relies on not everyone withdrawing their money at once.

I've never considered that a lie, because I've never encountered a bank the claims to be holding all the money. They merely claim that I will be able to withdraw my money, and that's on average true.

I consider that claim to be in the same category as the grocery store claiming I'll be able to buy toilet paper today. Sure, unless there's a pandemic. But usually? No pandemic.

I've been using a brokerage account for banking for years.

The online P2P lending boom here in the UK from financial crisis onward gave people this opportunity.

The end result, 10+ years in, has been subdued returns (relative to e.g. stocks) and crippling illiquidity, as you are exposed to all those late payments, defaults, and have no access to a functional secondary market.

Honestly you're lucky if you can get most people to even use a separate savings account. I know many people who keep 100% of their savings in their current (checking) account.

So you're keeping cash under the mattress then i assume?

It's turtles all the way down. You could say trust emerges when people agree to believe in a shared lie.

Robinhood has proven its intentions by its actions all the other things they say is just marketing and PR bullshit

I already know when it comes to volatility, they are going to choose IBKR over my account which is good because usually "my account" is fine but its the others who are doing really crazy things.

I know IBKR will be around in the morning. That's why I love them.

[1] https://www.youtube.com/watch?v=7RH4XKP55fM

https://gdcdyn.interactivebrokers.com/Universal/servlet/Regi...

There is a fixed amount that is deposited into a varaiety of accounts, let's say the total is T and individual accounts are T_i.

There are also consistent monthly inflows into a variety of T_i's that are dwarfed by T. These mostly go into scheduled investments (ETFs, etc). Call these TM_i.

The majority of T is invested and not traded. The total amount available for short term trades is T_t which is perhaps (in my estimation) 20% of T. That's still a large amount. Howver, this 20% sets the price. Everything happens at the margins.

Trading is the act of taking from one T_i into another T_i. That's it.

That's the job of clearinghouses. Each broker has to settle up at some point but also has to have collateral deposited in order to make sure that they can settle up. This collateral fluctuates depending on volatility.

The worry was that given the obscene run, brokers would not be able to settle up.

IBKR did the right thing to keep a catastrophic problem from developing.

Of course, shorting 130% of a stocks float is a problem that needs to be resolved as well as this is the root cause. If it were just 20-30% then this would never have happened.

So where was IBKR when people were shorting 130% of stocks?

Your guess is as good as mine but my guess is that _their_ risk management, which is very good, handled this reasonably well in their little bubble and they could have potentially been punished by the actions of other people and decided that this was not a risk they were willing to take.

Tough thing to resolve but by talking about it, I think it can be resolved well.

Root cause: somehow, you can short more than the float.

I suspect they lost you as a customer either way.

yes

Unfortunately, there is no way to check if the stocks are really there. RH showed you some pixels on the screen saying they hold stocks for you. If RH maliciously or by mistake lost them or never bought them, then there is no third party that will make you whole.

If that takes several weeks or months in a highly volatile market its basically life or doing a flip.

https://www.investopedia.com/articles/investing/050515/what-...

I am not even joking.

And it's the same for transactions or your bank balance. The bank doesn't keep your money and give it back to you. At least, for banks, they are backed by the government and IMF. For stocks and gift card balance, I am not so sure.

Never ever use a broker where you can't pick up the phone and talk to a real human being. They all have zero commissions now so there's no excuse.

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 a margin call was.

They should not have huge backlash because its users stop-loss orders were triggered, and then executed at a lower price.

This is just confusion that shouldn't exist, because a reasonable brokerage shouldn't be luring people into these risky positions just to make a buck on the sale.

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.

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.

> 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)

1. No, not all Robinhood accounts are margin accounts, a simple google search tells you that: https://robinhood.com/us/en/support/articles/robinhood-accou...

2. Yesterday, all Cash accounts were disabled from trading GME, that’s a fact and please defend that again.

3. Trading with a margin accounts and trading on margin is different. I can have a margin account and borrow $0 on margin to trade.

I don't think I said that; I said that Robinhood papers over the differences in a way such that the end user doesn't explicitly interact in a hugely different way, and it's not explicitly clear what kind of account you have.

I did imply that new accounts are all technically margin accounts. The link you provided seems to prove that?

> When you sign up for a new account, you’ll automatically start with a Robinhood Instant account, which is a margin account.

> 2. Yesterday, all Cash accounts were disabled from trading GME

Yes, but I didn't say that this was because they were "margin". I said that this appears to be because Robinhood, as the broker, still requires additional cash on hand to cover these positions until they settle. This is a different thing than the margin issue.

> 3. Trading with a margin accounts and trading on margin is different.

Yes you're right. But a new user that just signed up may be thinking they are using a cash account, but it's actually a margin account. It also appears that you have to manually downgrade from an "Instant" (margin) account, to a "Cash" account[0], and I highly suspect that most people didn't do that, and thus are still using a margin account.

[0] (yes, it is really bad that this link is broken at the moment) https://robinhood.com/us/en/support/articles/downgrading-fro...

But I am against what they did to the cash accounts (and margin accounts not borrowing money to trade). It seems that you think it's a small portion of all of the accounts, which I disagree.

Even if it's only a small portion, what Robinhood did to these cash accounts was unprecedented and unacceptable as a broker.

For point 2, I think you are referring to the clearing process. Brokers were liable to cover if clearing houses do not[0]. But that is Robinhood's liquidity issue and not does justify Robinhood disabling cash accounts from buying stocks.

[0]https://www.youtube.com/watch?v=7RH4XKP55fM&feature=youtu.be

> But that is Robinhood's liquidity issue and not does justify Robinhood disabling cash accounts from buying stocks.

Robinhood having a liquidity issue 100% justifies them not offering services that they may not be able to actually cover. Because the alternative is way, way worse. You want Robinhood to just... make up money that they owe people but don't actually have? I'm fairly confident that financial institutions can't just make up numbers in order to manipulate their way into compliance.

I very much dislike Robinhood as a company, but what you're suggesting doesn't make sense.

That’s exactly the point the parent commenter is making: there is nothing to cover for stock purchases on accounts with a balance. No liquidity issues can arise from that. You can say it’s easier to just turn off everything at once, but there is no actual reason to prevent stock purchases without margin, the buyer bears all risk.

There would have to be an insane ratio of meme-stock trading vs SP500 for GME alone to impact their cash requirements - if that’s the case it seems they dug their own grave...

But, if you're a buy and hold investor, it shouldn't be an issue.

My gut feeling is that RH is designed to maximize the number of trades people make, as a core "engagement" metric. A few examples: 1) The UI is designed to induce in the user the feeling that something is happening, always - the graphs are not to scale, so small swings in price appear bigger than they really are. 2) The "Top 10" and community trends feed will trigger FOMO, and again will likely result in more day-trading.

In all, RH has too much "clutter" and noisy notifications for a buy and hold investor. Most platforms are now commission-free.

Aren't there laws against lying to investors?

And why exactly did they have to let people sell GME shares? In light of the current situation, it sounds to me like the responsible and impartial thing would have been for them to temporarily suspend all trading of GME - not just buying.

The trade-off was suspending trading on some stocks vs suspending trading on everything when they hit their limit.

A Bankrun!

This is not (and is not expected to be) true of stock brokerage. Nobody generally has an expectation of moment-to-moment liquidity (or even closure of deals), even in a stock with significant availability. However, a brokerage deciding independently "You're not allowed to buy this one stock" is unusual, and can cause people to start backing towards the exits.

Also it will only attempt to return the securities you 'lost' not their cash value. If you lose a lot of money due to not being able to sell your stocks for several days, that is not covered. So if you held 2000 stocks of GME, the SIPC will (eventually) give you back 2000 stocks of GME, not the cash value of those stocks when Robinhood went bankrupt.

My guess it that the customers are wrong most of the time.

They lost my trust yesterday.

This is no excuse for screwing retail investors. Horrible management. I mean, I am some random dude who can think of these, these are professionals running multi billion dollar enterprises, c'mon.