An Update on Market Volatility(blog.robinhood.com)
blog.robinhood.com
An Update on Market Volatility
https://blog.robinhood.com/news/2021/1/28/an-update-on-market-volatility
136 comments
For pointers to other vertices of this story graph, see https://news.ycombinator.com/item?id=25933543.
I don't understand how they can blame capital requirements and potentially having to cover customers' losses (that was Interactive Brokers) for stopping purchases of the stock. Unless you're talking about buying on margin, there's no risk that you'd have to absorb any loss for someone who just buys a share of the stock through you with their own cash.
> Unless you're talking about buying on margin, there's no risk that you'd have to absorb any loss for someone who just buys a share of the stock through you with their own cash.
The thing is, clearing houses expect collateral up front.
It's not a risk issue between Robinhood and its clients, its a risk issue between the clearing house and Robinhood.
I'm not saying that this what actually happened, I'm just saying that the presented argument has plausible elements.
The thing is, clearing houses expect collateral up front.
It's not a risk issue between Robinhood and its clients, its a risk issue between the clearing house and Robinhood.
I'm not saying that this what actually happened, I'm just saying that the presented argument has plausible elements.
You don't understand how trade settlement works under the hood. When trades occur, the money doesn't change hands immediately, only on the trade settlement date a couple days later. Before the trades settle the clearing house needs to be reassured that the brokerages actually have the money to settle the trades (brokerages have gone bankrupt before), so they make the brokerages post collateral. When volatility goes up the clearing houses demand more collateral to deal with the increased risk, and if Robinhood doesn't want to pay it then the clearing houses won't let them trade.
In other words, even if the end user isn't using margin, there is "margin" happening in the background between the clearing house and the brokerage.
In other words, even if the end user isn't using margin, there is "margin" happening in the background between the clearing house and the brokerage.
>Unless you're talking about buying on margin
I can assure you, there was a lot of margin purchases happening.
I can assure you, there was a lot of margin purchases happening.
Then why not do what TD did and restrict buying on margin? Why tell everyone on your platform that a "stock isn't supported"?
I am imagining their platform isn't that robust and it was the easiest way they had to shut it down temporarily.
RH doesn't know who's buying on margin?
That's also not my problem as a RH user that's not buying on margin.
That's also not my problem as a RH user that's not buying on margin.
Sure. I think there is a lot of incompetence at play here.
but the actions were taken against all buy orders, not only buys on margin.
Ok, as a customer why is that my problem? They’re not providing the service they promised. This is absurd.
Because they are on the hook if their customers can't pony up during a margin call. And there are a bunch of teenagers looking at six figure debt when things crash.
Again, this is the difference between a big boy brokerage and a free app. And them providing services they weren't capable of weathering was probably the original sin.
Again, this is the difference between a big boy brokerage and a free app. And them providing services they weren't capable of weathering was probably the original sin.
I dunno man, the big boy brokerage of IB did the same thing
If you read the various user agreements, you can see they have nowhere promised to execute 100% of possible trades 100% of the time, and explicitly give themselves the option to make the sort of changes they've made.
Also in the event that everything is true and straightforward, why wouldn't they say that at the start (and through the whole day)
As the post says, "We stand in support of our customers".
People who buy and sell stock on Robinhood don't pay them anything, it's the market makers that pay them.
In this case, the adage is true "You're not the customer, you're the product"...
People who buy and sell stock on Robinhood don't pay them anything, it's the market makers that pay them.
In this case, the adage is true "You're not the customer, you're the product"...
They do make money off of some people who buy and sell stocks in the form of their Robinhood Gold subscription ($5 a month) and margin (2.5% interest).
This is extremely suspect. If you take my money, and give me a share, in theory I should be the only one exposed to a loss (assuming no leverage). Unless you're doing something else with my money or my shares.
I'm sure many people are buying on leverage, but that doesn't explain why they can't just limit margin buying vs preventing any purchase of the stock.
I'm sure many people are buying on leverage, but that doesn't explain why they can't just limit margin buying vs preventing any purchase of the stock.
Shares in the US take 3 days to settle. Technically when you buy a share, and it shows up in your account you don’t have actually own it. The broker is only showing you what you expect to receive.
Same for selling a share. Cash from the proceeds will show up in your account, but the broker hasn’t actually received that money from the settlement. You can trade with that cash, only because the broker is extending you credit.
This is why you can’t trade more than once every three days in an IRA. Tax exempt accounts can’t be used as collateral for loans.
Same for selling a share. Cash from the proceeds will show up in your account, but the broker hasn’t actually received that money from the settlement. You can trade with that cash, only because the broker is extending you credit.
This is why you can’t trade more than once every three days in an IRA. Tax exempt accounts can’t be used as collateral for loans.
That's the abstraction that gets presented to the end-user but it's not how it works under the hood. When trades occur money doesn't change hands immediately, settlement only occurs two days later. The clearing houses require the brokerages to post collateral to ensure that they have the money required to settle the trades. When volatility goes up the clearing houses demand more collateral to deal with the higher risk. If the brokerage doesn't want to post the collateral the clearing houses won't let them trade.
Too little too late as far as brand reputation. Feels like #DeleteUber on steroids.
Mark my words - Robinhood is going to be fine and it will have negligible impact. They have a strong product and better than anyone else in the market as a mobile app.
It's a pretty product but calling it "strong" is very generous. It goes down constantly and I'd personally never trust more than a few hundred bucks to the platform. It's by far one of the worst brokerages in terms of execution and reliability.
It’s not meant for day trading; it’s meant for investing.
There's no need for a Capital-I Investment App to be on mobile. You should be doing research on a bigger screen, and when its time to execute trades you shouldn't be doing them on the shitter and shouldn't care if its executed at 9am or 4pm or the next day.
The Robinhood app is totally designed to suck Millennials into daytrading on their mobiles.
The Robinhood app is totally designed to suck Millennials into daytrading on their mobiles.
Not everyone has a laptop or a desktop. And you can do plenty of research on a phone or iPad.
You’re right. They’ve got some issues, but there is nothing else like it out there that’s easy for newbies to invest despite of reliability issues.
But they've taken themselves out of the newbie market. Newbies now see them as shady. Potential newbies now see them as shady.
I think you're drastically underestimating the reputational hit they took today.
I think you're drastically underestimating the reputational hit they took today.
I've seen these things come and go. #DeleteUber, no one gives a shit about it anymore.
Perhaps, you're drastically overestimating the hit they took today? Let's mark this comment and check after 6 months or a year.
Perhaps, you're drastically overestimating the hit they took today? Let's mark this comment and check after 6 months or a year.
DeleteUber was entirely different thing. A boycott attempt driven by social justice issues. This is something that negatively impacted over half of Robinhood's customers in a very direct manner. Not at all comparable.
Sure, let's check back in a year.
Sure, let's check back in a year.
You make a fair point noting the differences of motivation behind the boycott.
>They have a strong product and better than anyone else in the market as a mobile app.
reply
Guess you've never heard of ThinkOrSwim. RH is a toy. It's fine for most purposes, but not much more than fine. They consistently fill orders at a sub-optimal price and the amount of downtime is a joke.
This hurts them and I think you're wrong about their future. They're helping to screw over the very people who have made them successful. We'll see what the actual fallout is given their relationship to Citadel and Citadel's relationship with Melvin Cap.
Guess you've never heard of ThinkOrSwim. RH is a toy. It's fine for most purposes, but not much more than fine. They consistently fill orders at a sub-optimal price and the amount of downtime is a joke.
This hurts them and I think you're wrong about their future. They're helping to screw over the very people who have made them successful. We'll see what the actual fallout is given their relationship to Citadel and Citadel's relationship with Melvin Cap.
I have. ThinkOrSwim (TDA) is amazing. But they’re operating in a different segment. Newbies would be overwhelmed in using TOS.
Fair enough. I've immediately liquidated everything in my RH account (I wasn't trading GME or AMC), and I'm waiting to withdraw my funds before I close my account and never touch their app again.
There are plenty of brokers, and web-based brokerages work better than a mobile app for me anyway.
There are plenty of brokers, and web-based brokerages work better than a mobile app for me anyway.
Note for others if you want to transfer to another broker you may be better to sign up elsewhere first, then do an ACATS transfer from your other broker of your entire Robinhood account. This avoids closing positions and reopening them creating a tax event. Just screenshot / save all your lots and cost basis first in case there is an issue loading them at the other end (that’s rare).
If it's true half their current user base is long on GME I can't see it not having much impact. Not that handling them today better would have saved them from all the impending fury of people losing big on the way down anyway.
Whatever they said was going to be ignored by people still furiously insisting that Melvin Capital lied about closing their position yesterday, but you'd have thought they could have got that statement out faster than the rumours too.
Whatever they said was going to be ignored by people still furiously insisting that Melvin Capital lied about closing their position yesterday, but you'd have thought they could have got that statement out faster than the rumours too.
A great app means nothing in the face of treating your users with blatant contempt.
RHs told it's users 'you are our product. Do as you are told.'
People are not as stupid as they're made out to be and they have some self respect and dignity.
RH has mortally wounded itself.
RHs told it's users 'you are our product. Do as you are told.'
People are not as stupid as they're made out to be and they have some self respect and dignity.
RH has mortally wounded itself.
In the long run? Probably. Short term I think this at least delays their IPO.
I know they've lost me as a customer (and I actually pay for gold and margin). I was a huge fan of Robinhood and have been using them for nearly 5 years.
I know they've lost me as a customer (and I actually pay for gold and margin). I was a huge fan of Robinhood and have been using them for nearly 5 years.
How are they going to deal with the fact half of their reviews on Google Play are 1 star, and their average is now 1.x star? Google isn't going to bend over backwards for them to delete legitimate user reviews.
The same reason it didn't effect Facebook. Ratings don't matter for apps that are already household names. There's also no comparable alternative.
What about Webull? Seems like they serve the same market.
https://www.webull.com/
https://www.webull.com/
Review recency matters in both app stores, AFAIK. It'll end up back wherever it would normally be as the review bomb ages out.
Android isn't the largest share of smart phone users in the US, and it's still 5 stars on the iOS app store.
Robinhood is only available in the US.
Which is why I qualified that. The numbers I've found indicate smartphone users, in the US, favor iOS (greater than 50% market share). So 1-star reviews in one of two app stores, and the app store with fewer users, won't be the thing that undoes Robinhood.
Do they have any sort of moat, though? What stops Fidelity or Schwab from hiring 10 iPhone devs and making their app just as fun and easy to use?
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This was an awful PR response.
I actually buy the reasoning behind it - but putting out a corporate speak like this instead of trying to emotionally relate to upset users? Smh
I actually buy the reasoning behind it - but putting out a corporate speak like this instead of trying to emotionally relate to upset users? Smh
>I actually buy the reasoning behind it - but putting out a corporate speak like this instead of trying to emotionally relate to upset users? Smh
Their reasoning makes no sense. If someone isn't buying on margin, who are they protecting exactly? Citadel and Melvin Capital, that's who. The funds weren't "protected", were they?
Their reasoning makes no sense. If someone isn't buying on margin, who are they protecting exactly? Citadel and Melvin Capital, that's who. The funds weren't "protected", were they?
"We are deeply grateful to our users" is about to get memed to the moon.
Just like "we are bullshitting but look at our smile". And there is a way to present a facet of the reality while clouding another one so I'm not saying their message is a complete lie, it's just taken from a controlled perspective.
Just stay away from robinhood. Use a serious broker. Even if you - privileged as you are - think you can deal with that. Others may not see as far, and be scammed.
Avoid IB, a serious broker that did exactly the same thing as RH today
What are the recommended alternatives?
Recommendation for a serious broker?
"As a brokerage firm, we have many financial requirements, including SEC net capital obligations and clearinghouse deposits. Some of these requirements fluctuate based on volatility in the markets and can be substantial in the current environment."
Can anyone translate that?
It seems to be referring to:
* https://en.wikipedia.org/wiki/Net_capital_rule
* https://en.wikipedia.org/wiki/Automated_clearing_house
Can anyone translate that?
It seems to be referring to:
* https://en.wikipedia.org/wiki/Net_capital_rule
* https://en.wikipedia.org/wiki/Automated_clearing_house
Yeah, as a completely disinterested party, I'm entirely unclear as to what legal obligations a middleman like robinhood could be under to prevent them from allowing parties to buy/sell stock on their platform. I think they owe a much greater burden of transparency if they want to convince the neutral, educated who don't have a personal stake in the issue that they didn't manipulate the market (illegally?).
> SEC net capital obligations
They have to meet certain governmental guidelines on deposits vs asset price risk.
> clearinghouse deposits
Clearing members have to deposit money into clearinghouses as insurance in case a firm goes under.
They have to meet certain governmental guidelines on deposits vs asset price risk.
> clearinghouse deposits
Clearing members have to deposit money into clearinghouses as insurance in case a firm goes under.
I can understand how risk management might be necessary for margin trading, but is it really necessary for non-margin trading?
And if it's a scaling issue, shouldn't all stocks be equally affected, rather than cherry-picking just a few?
And if it's a scaling issue, shouldn't all stocks be equally affected, rather than cherry-picking just a few?
> limited buys of these securities
People invest due to variety of reasons. Speculation, undervalue, overvalued, etc. This does not seem like an open market if people cannot buy and sell at their own risk.
Sudden changes to what is allowed in the market could also cause some unknown shift to how it works. If things are let to be, at least, at some time, things will settle down ... whether that takes a few days, weeks, years, decades. I think that is how the market works. There appears to be added controlling factors into the market.
I would rather be with a brokerage where I can make my own decisions. Not one that suddenly controls what can and cannot be done.
TD & Robinhood restricts certain trades: https://www.cnet.com/personal-finance/robinhood-app-td-ameri...
People invest due to variety of reasons. Speculation, undervalue, overvalued, etc. This does not seem like an open market if people cannot buy and sell at their own risk.
Sudden changes to what is allowed in the market could also cause some unknown shift to how it works. If things are let to be, at least, at some time, things will settle down ... whether that takes a few days, weeks, years, decades. I think that is how the market works. There appears to be added controlling factors into the market.
I would rather be with a brokerage where I can make my own decisions. Not one that suddenly controls what can and cannot be done.
TD & Robinhood restricts certain trades: https://www.cnet.com/personal-finance/robinhood-app-td-ameri...
Nice try RobinHood. But we all know you are just in bed with the hedge funds that you sell order flow and trading data to.
Robinhood routes their order flow to Citadel, who stands to directly profit from Robinhood restricting trades on GameStop. It's hard to see how Robinhood's reputation isn't absolutely destroyed after this betrayal.
What does "limited" even mean?! It's already limited to hedge funds.
Likely no margin at all. Maybe even to the point of cash needing to clear into your account (from previous trades/ACH transfers) before you can buy these stocks.
Maybe limits/ban on selling of options where the loss can be unlimited (as opposed to buying where the limit is the option's contract price).
Maybe limits/ban on selling of options where the loss can be unlimited (as opposed to buying where the limit is the option's contract price).
They literally barred everyone from buying under any circumstance.
Huh? Read the linked article. We're discussing what they could mean by "Limited" tomorrow.
Ah, sorry, my mistake. RTFM and all that...
I don't understand all the kerfuffle.
I'm from EU and was looking into investing earlier into Nasdaq symbols, iow before my bank decides to bother letting me pick some crumbs from their plate.
So I look around and I figure that what you can do on these online trading platform is to buy some glass-beads from them that happen to correspond to IRL stocks. IOW, these folks are data-mining user sentiment to place orders while offloading risk.
Isn't it the same with RH? Aren't they just saying "you can play along, just not with these beads. Too risky for us." Or is RH a straightforward stock broker?
I'm from EU and was looking into investing earlier into Nasdaq symbols, iow before my bank decides to bother letting me pick some crumbs from their plate.
So I look around and I figure that what you can do on these online trading platform is to buy some glass-beads from them that happen to correspond to IRL stocks. IOW, these folks are data-mining user sentiment to place orders while offloading risk.
Isn't it the same with RH? Aren't they just saying "you can play along, just not with these beads. Too risky for us." Or is RH a straightforward stock broker?
We're in a bubble that's being used instrumentally in a game of chicken between average joe with RH account and hedge funds on their short positions.
There's more to gain from this because of the social aspect (social change and reform), but also more to lose (bubble bursting on the average citizen that has more to lose personally than a fund).
I'm obviously not cheering for the funds here, but I do worry for people like my dad who can just buy a stock more easily than order dinner.
The social movement is honorable, but at what cost? This has the shape and character of a Joker move, when does the bubble burst?
There's more to gain from this because of the social aspect (social change and reform), but also more to lose (bubble bursting on the average citizen that has more to lose personally than a fund).
I'm obviously not cheering for the funds here, but I do worry for people like my dad who can just buy a stock more easily than order dinner.
The social movement is honorable, but at what cost? This has the shape and character of a Joker move, when does the bubble burst?
I can't help but facepalm that people are genuinely encouraging one another to buy a stock that is so obviously overvalued, and then hold it at that price as long as possible...
there are not many guarantees in trading, but that is a guarantee to lose money. and because it's under the guise of "sticking it to the man" people have become even less rational about their money.
so when the stock eventually corrects to where it belongs for a dying retailer selling physical media in the digital age... I can only imagine the millions "surprised pikachu face" that will ensue
there are not many guarantees in trading, but that is a guarantee to lose money. and because it's under the guise of "sticking it to the man" people have become even less rational about their money.
so when the stock eventually corrects to where it belongs for a dying retailer selling physical media in the digital age... I can only imagine the millions "surprised pikachu face" that will ensue
> there are not many guarantees in trading, but that is a guarantee to lose money.
What? This is not at all a guarantee. Even if there were a guarantee that it will come back down eventually (which seems highly likely but that's still not a guarantee), that doesn't mean it will go down today or tomorrow or next week. For all we know there is still lots of time for new investors to get in, make money, and then get out before the price crashes.
The particular absurdity of your claim here is that if it were true, we could not possibly have ended up in this place. That's exactly how we got here, people who "knew better" knew that of course this stock was going down and shorted it. Then it went up a little and people shorted it even more and it went up even more, and on and on as this played out over the past few weeks.
What? This is not at all a guarantee. Even if there were a guarantee that it will come back down eventually (which seems highly likely but that's still not a guarantee), that doesn't mean it will go down today or tomorrow or next week. For all we know there is still lots of time for new investors to get in, make money, and then get out before the price crashes.
The particular absurdity of your claim here is that if it were true, we could not possibly have ended up in this place. That's exactly how we got here, people who "knew better" knew that of course this stock was going down and shorted it. Then it went up a little and people shorted it even more and it went up even more, and on and on as this played out over the past few weeks.
the "guarantee" I'm referring to comes from these two assumptions:
- the price is overvalued and will correct
- the prevailing sentiment on the wsb subreddit is "HOLD NO MATTER HOW HIGH IT GOES" (seriously, that's what they are saying)
So, sure, maybe gamestop will magically become a company as valuable as its stock implies it is. But realistically no one would bet on this.
So given that it is overvalued by everyone's definition of the term, and given that the hivemind has decided to "HOLD NO MATTER WHAT", it becomes obvious what will eventually happen - the hivemind will keep holding, since that's the meme, and memes drive stocks now - and Gamestop will correct. And that will be that.
- the price is overvalued and will correct
- the prevailing sentiment on the wsb subreddit is "HOLD NO MATTER HOW HIGH IT GOES" (seriously, that's what they are saying)
So, sure, maybe gamestop will magically become a company as valuable as its stock implies it is. But realistically no one would bet on this.
So given that it is overvalued by everyone's definition of the term, and given that the hivemind has decided to "HOLD NO MATTER WHAT", it becomes obvious what will eventually happen - the hivemind will keep holding, since that's the meme, and memes drive stocks now - and Gamestop will correct. And that will be that.
> For all we know there is still lots of time for new investors to get in, make money, and then get out before the price crashes.
Yes, that means an equivalent amount of people will be holding the huge loss, because they bought in when the previous person got out...
Yes, that means an equivalent amount of people will be holding the huge loss, because they bought in when the previous person got out...
The short squeeze is to force the hedge funds to buy at a high price when they have to cover their short. This is the whole plan.
And once there's no more hedge funds shorting, or not enough capital from retail to squeeze shorts anymore? Price flatlines, retail will eventually start selling, and the downward spiral to play musical chairs will be devastatingly quick.
The vast majority know what they are doing here, I took a tiny fraction of my money and bought in - less than I would spend on a family meal out. I assume I lost it but it’s fun to have some skin in the game for the ride. Some people are putting silly amounts in but they know they’re not investing based on market fundamentals, they want in on the ride and they know they can loose it all.
The issue here is the clear protections/options in place for hedge funds that they can use when they feel a squeeze but absolutely no protection for average joe investor when these guys try to short an otherwise viable business going through a rough patch.
GameStop and Blackberry are in the middle of a turn around, shorting them and then telling the market they are failing is unethical and if they feel a bit of pain at the moment then good.
The issue here is the clear protections/options in place for hedge funds that they can use when they feel a squeeze but absolutely no protection for average joe investor when these guys try to short an otherwise viable business going through a rough patch.
GameStop and Blackberry are in the middle of a turn around, shorting them and then telling the market they are failing is unethical and if they feel a bit of pain at the moment then good.
I know GameStop brought in new leadership, but a turn around is a reach, in my opinion.
To me, GameStop is the mall store (problem), that required me to pre-pay for product expected to be wildly popular (problem), offers me $2 for physical media (problem^2) so that when I go in they can offer me used for $58 instead of new for $60 (problem).
The future of gaming is downloads and streaming. GameStop may be able to generate revenue for a while selling used last gen systems while the current new consoles launch, but there's nothing about their position or business model that has a strong future. Plus, I'd say their long history of horrible customer satisfaction mean they don't have the brand loyalty for a pivot/reboot.
I don't think it's unethical to short that.
To me, GameStop is the mall store (problem), that required me to pre-pay for product expected to be wildly popular (problem), offers me $2 for physical media (problem^2) so that when I go in they can offer me used for $58 instead of new for $60 (problem).
The future of gaming is downloads and streaming. GameStop may be able to generate revenue for a while selling used last gen systems while the current new consoles launch, but there's nothing about their position or business model that has a strong future. Plus, I'd say their long history of horrible customer satisfaction mean they don't have the brand loyalty for a pivot/reboot.
I don't think it's unethical to short that.
> The social movement is honorable
I’m gonna disagree. The entire “social movement” seems to be little more than the same tired old cliches and hysterics about “speculators”.
The main grievance is basically that short selling is bad. Despite academic finance, finding again and again that short selling meaningfully improves price efficiency and protects ordinary investors from bubbles and mania.[1][2]
Again and again corporate executives use the scapegoat of short sellers and speculators to shift the blame from their own mismanagement. GameStop is no different, and it’s certainly not the short sellers that caused it to have a dying business model that’s hemorrhaging money.
[1]https://www.sciencedirect.com/science/article/abs/pii/S03784... [2] https://academic.oup.com/rfs/article-abstract/24/3/821/15904...
I’m gonna disagree. The entire “social movement” seems to be little more than the same tired old cliches and hysterics about “speculators”.
The main grievance is basically that short selling is bad. Despite academic finance, finding again and again that short selling meaningfully improves price efficiency and protects ordinary investors from bubbles and mania.[1][2]
Again and again corporate executives use the scapegoat of short sellers and speculators to shift the blame from their own mismanagement. GameStop is no different, and it’s certainly not the short sellers that caused it to have a dying business model that’s hemorrhaging money.
[1]https://www.sciencedirect.com/science/article/abs/pii/S03784... [2] https://academic.oup.com/rfs/article-abstract/24/3/821/15904...
The part that is "honorable" about the social movement, for me at least, is that the sheer exposure of the shenanigans that wall street carries out, coupled with the challenging of status quo power structures (institutional vs. retail, special accredited status vs. joe on RH), has the potential to lead to general reform and positive changes.
I think you're too quick to defend short selling as purely good, just as everyone else is too quick to decry it as pure evil. There's a middle ground here that's better for everyone, and a public dialectic on the scale we're seeing now is honorable and potentially effective, in my opinion.
I think you're too quick to defend short selling as purely good, just as everyone else is too quick to decry it as pure evil. There's a middle ground here that's better for everyone, and a public dialectic on the scale we're seeing now is honorable and potentially effective, in my opinion.
But the shenanigans Wall Street carries out isn't the world's best kept secret, and this adds more noise than signals to the mix. The Wall St vs the masses narrative is entirely fake (a lot of market makers and funds already long on GME are delighted at the influx of money from novices, and some of the shorts will be little guys too), the claims of shenanigans don't really add up (Robinhood suspends trading today to benefit a partner who unwound their position... yesterday) and we're certainly not seeing middle ground arguments on shorting, or funds, or anything really. And people aren't going to get more open minded after they lose money in their first significant interaction with financial markets.
I doubt reforms that might happen as a result are going to be what people piling on meme stocks want either.
I doubt reforms that might happen as a result are going to be what people piling on meme stocks want either.
Can anyone in this social movement articulate what exactly those “shenanigans” are and provide evidence that they’re occurring.
Not that there aren’t well founded criticisms of the financial industry. But as far as I see WSB appears to have zero overlap with any of them. All I see are gross inaccuracies (“short interest over 100% means they were naked short”) and zero-evidence QAnon like conspiracy theories about hedge funds colluding to shit down Robinhood.
Not that there aren’t well founded criticisms of the financial industry. But as far as I see WSB appears to have zero overlap with any of them. All I see are gross inaccuracies (“short interest over 100% means they were naked short”) and zero-evidence QAnon like conspiracy theories about hedge funds colluding to shit down Robinhood.
Hedgefunds overstepped and now if you own a share of GME they are required to buy it back from you at any price. They made that contract when they shorted. They planned nobody would notice or care. Now every person who notices and does the most rudimentary hello world market action (buying a stock) hurts them. This could only happen in the context of the audacious 140% shorts. This is the type of shenanigan people are referring to.
A high short interest is not a sign of any sort of malfeasance. There’s no upper limit of shorting, since shares can be borrowed, sold, then borrowed again.
Short interest above 100% is perfectly fine. Stocks can and do go over this imaginary line, without any fraud involved. It just means that many people disagree about the price.
Allowing speculators to build up large short positions is a good thing, because it helps prevents overpriced bubble from forming. Read the actual academic research from my original look comment. If a hedge fund is willing to take the risky and thankless job of taking a large and concentrated short position, the public should be thanking them for their contribution to market efficiency.
Short interest above 100% is perfectly fine. Stocks can and do go over this imaginary line, without any fraud involved. It just means that many people disagree about the price.
Allowing speculators to build up large short positions is a good thing, because it helps prevents overpriced bubble from forming. Read the actual academic research from my original look comment. If a hedge fund is willing to take the risky and thankless job of taking a large and concentrated short position, the public should be thanking them for their contribution to market efficiency.
There is nothing inherently wrong in short interest above 100%, as you point out. There is no disagreement from me that it's possible to both have large short interest and at the same time have healthy economic activity devoid of fraud.
The core of the social movement here is an asymmetry in who gets to engage in audacious economic transactions. Is it reserved exclusively for the institutions we should be thanking for maintaining the pillars of our society? Maybe if a fund decides to take out an audacious short position, retail investors should be able to have an equal and opposite reaction to it.
The suppression from trading platforms and the asymmetric response here is only supporting the cause of the movement, and not helping with getting us closer to "thanking" the funds.
The core of the social movement here is an asymmetry in who gets to engage in audacious economic transactions. Is it reserved exclusively for the institutions we should be thanking for maintaining the pillars of our society? Maybe if a fund decides to take out an audacious short position, retail investors should be able to have an equal and opposite reaction to it.
The suppression from trading platforms and the asymmetric response here is only supporting the cause of the movement, and not helping with getting us closer to "thanking" the funds.
Anyone is able to have opposite reaction to an audacious economic transaction, it just takes a lot of retail traders to have an opposite reaction to one hedge fund. So even if the hedge fund's audacious bet is horribly wrong, the smart money reacts and profits before the crowd can coordinate their pile on. Hedge funds bet against other hedge funds too.
The asymmetry is who loses, and unlike the hedge funds with dreadful risk management, most of the retail traders piling in this week won't have mansions and yachts to go back to after their bad bet turns sour.
The asymmetry is who loses, and unlike the hedge funds with dreadful risk management, most of the retail traders piling in this week won't have mansions and yachts to go back to after their bad bet turns sour.
This is exactly where I will agree 100% with you, and why my original comment is more cautionary than optimistic.
Only invest what you can afford to loose
Seems like common sense, but I am willing to bet average joe RH investor does not have the financial hygiene to appreciate that fact enough.
A simple disclaimer "We're not responsible if you get wiped out!" with another popup "Are you really sure you want to proceed?" after pressing ok twice would suffice before placing a bet. Who are we fooling? This damage control operation was to benefit their friends.
- Does this advice apply to stocks?
- Does this advice apply to foreign currencies?
- Does this advice apply to local currencies?
See the contradiction? You're always invested.
- Does this advice apply to foreign currencies?
- Does this advice apply to local currencies?
See the contradiction? You're always invested.
If I'm always invested why aren't I living under a bridge because Pier 1 Imports went bankrupt in 2020?
Also, I'm concerned that the earth could get hit with a rogue planet.
Also, I'm concerned that the earth could get hit with a rogue planet.
> but I do worry for people like my dad who can just buy a stock more easily than order dinner.
I can't wrap my head around this argument at all. Why can't you trust your dad about his stock purchases? Yes, someone like your dad can buy a stock easily. They can also lose all their money at a casino or buy a lottery ticket easily. They can spend all their money on gadgets or fancy clothes. They can drink too much alcohol, or gain too much weight. Life comes with risks.
To the extent that a behavior will harm innocent bystanders, then I am fine with making various things illegal, I'm not an anarchist or hard core libertarian or anything. But I don't see how letting someone buy shares of a stock falls into that category of things that could harm innocent bystanders.
I can't wrap my head around this argument at all. Why can't you trust your dad about his stock purchases? Yes, someone like your dad can buy a stock easily. They can also lose all their money at a casino or buy a lottery ticket easily. They can spend all their money on gadgets or fancy clothes. They can drink too much alcohol, or gain too much weight. Life comes with risks.
To the extent that a behavior will harm innocent bystanders, then I am fine with making various things illegal, I'm not an anarchist or hard core libertarian or anything. But I don't see how letting someone buy shares of a stock falls into that category of things that could harm innocent bystanders.
> Why can't you trust your dad about his stock purchases?
It's not the stock purchases in themselves. It's the degree to which certain stocks are hyped, largely by misinformation and traditional bubble mechanics, that's particularly insidious here. There's a reason why pump-and-dump schemes are traditionally regulated by securities laws.
It's not the stock purchases in themselves. It's the degree to which certain stocks are hyped, largely by misinformation and traditional bubble mechanics, that's particularly insidious here. There's a reason why pump-and-dump schemes are traditionally regulated by securities laws.
From what I understand, pump-and-dumps are illegal if you make untrue promises about future behavior or otherwise are shown to deceive or lie about it. Or if you are coordinating to have a certain group all sell at an exact same time to leave others holding the bag.
I suppose it's a fine line, but to me this seems much more loosely coordinated. I don't think there's been any particular time to sell that has been agreed on, and all the communication is out in a public forum. And the demand for the stock is all based around public knowledge that it was shorted 140% of its market cap. It seems like the difference between insider trading vs if information leaks to the public about a company's plans in which case it's completely legal to trade based on.
I suppose it's a fine line, but to me this seems much more loosely coordinated. I don't think there's been any particular time to sell that has been agreed on, and all the communication is out in a public forum. And the demand for the stock is all based around public knowledge that it was shorted 140% of its market cap. It seems like the difference between insider trading vs if information leaks to the public about a company's plans in which case it's completely legal to trade based on.
It's pretty clear that Robinhood users are incredibly leveraged right now on these transactions. Someone in finance probably gave their team a "Come to Bernanke moment" and pointed out that when the bubble pops they will be eating a huge load of crap where they are on the hook for a bunch of teenagers' margin calls.
It's crappy all around, but the ball was in their court for giving so many people the ability to trade on the margin.
It's crappy all around, but the ball was in their court for giving so many people the ability to trade on the margin.
nonsense.
the best way to protect this theoretical "bunch of teenagers" would be to block their purchases, but allow buys that are cash in hand.
they did't: they banned all buy orders.
that tells you everything you need to know.
the best way to protect this theoretical "bunch of teenagers" would be to block their purchases, but allow buys that are cash in hand.
they did't: they banned all buy orders.
that tells you everything you need to know.
So why shut down the ability to buy with cash too?
I could buy it if they decided to halt trading on those securities, but they only halted buying.
>this was a risk-management decision
No it wasn't. It was a reputation management decision and a bad one.
No it wasn't. It was a reputation management decision and a bad one.
The class action lawsuits out of this are going to be amazing to watch. Once the announcement was made, how many sales were done in response, which has now blown everything even further into unknown territory?
I closed some of my positions in these volatile stocks at a small loss because I had no faith that the people in charge would actually let people buy and sell the stocks they wanted to. I didn't lose much, but it feels bad knowing that I only lost because people in power used their influence to protect other people in power at the expense of the average retail investor. I was perfectly willing to accept the risk of owning a small amount of volatile shares. Now, Robinhood is saying they'll open up trading to an extent. I wish wall street would play by a consistent set of rules. I'm definitely not being protected by their heavy handed interventions.
I'm honestly confused. I'm seeing a lot of rage in these threads. More than I'd expect. I understand not liking the hedge funds, and wanting to "stick it to the man" in some way, but it seems like more is going on here.
Nobody is buying GME long at $400. The price is crazy. GameStop's business is selling used hard copies and leaning into customer dissatisfaction.
It's a clear bubble and people are going to be hurt when it pops. There should be some consumer protections, IMHO, because a bunch of people are amping up a price for lulz and hopes of timing things right, but not everyone can win that pyramid scheme.
What am I missing that is leading to the rage I'm seeing?
Nobody is buying GME long at $400. The price is crazy. GameStop's business is selling used hard copies and leaning into customer dissatisfaction.
It's a clear bubble and people are going to be hurt when it pops. There should be some consumer protections, IMHO, because a bunch of people are amping up a price for lulz and hopes of timing things right, but not everyone can win that pyramid scheme.
What am I missing that is leading to the rage I'm seeing?
People did the same thing with Beanie Babies and lost entire life savings.
People get into credit card debt and eventual bankruptcy buying any number of luxury items. Should we require credit reports before you can buy Gucci or expensive wine?
People lose their houses in Las Vegas.
If we want to protect people, then I don't think it's fair to single out the stock market as the only place we do that.
People get into credit card debt and eventual bankruptcy buying any number of luxury items. Should we require credit reports before you can buy Gucci or expensive wine?
People lose their houses in Las Vegas.
If we want to protect people, then I don't think it's fair to single out the stock market as the only place we do that.
It's a short squeeze, not just a bubble?
I bought a single share near $400 for the memes, so I wouldn't say "nobody".
Some retail investors will likely lose, sure, but the biggest losers will be the shorts, and retail/longs will win as a whole. That's why people are mad, with Robinhood's manipulation they are setting it up so only the shorts win and almost no remaining retail.
I bought a single share near $400 for the memes, so I wouldn't say "nobody".
Some retail investors will likely lose, sure, but the biggest losers will be the shorts, and retail/longs will win as a whole. That's why people are mad, with Robinhood's manipulation they are setting it up so only the shorts win and almost no remaining retail.
I'm sorry I still don't understand and I hope you will clarify.
You bought at $400 and expect that to be a good investment?
How will the longs that bought above arbitrary number $20 benefit in the long term?
You bought at $400 and expect that to be a good investment?
How will the longs that bought above arbitrary number $20 benefit in the long term?
No, at this point it's not about a good investment. It's a "fuck you" to Wall Street. They exploit the working class, get rich, fuck up our economy, and then steal even more from us to save their own asses.
People are tired of it. Gamestop is a form of protest. Robinhood did the worst thing they could by messing with it. They sided with Wall Street against the little guy. It shows how rigged the system is. Apparently the little guy can't exploit a bad trade by the rich, it can only go the other way around. So now Robinhood is on the other side of this, and I hope they go under from it.
People are tired of it. Gamestop is a form of protest. Robinhood did the worst thing they could by messing with it. They sided with Wall Street against the little guy. It shows how rigged the system is. Apparently the little guy can't exploit a bad trade by the rich, it can only go the other way around. So now Robinhood is on the other side of this, and I hope they go under from it.
I have sympathy for the anger against Wall Street but correct me if I'm wrong: the short seller hedge funds are already out and now it's a bunch of little guys left holding the shares until the bubble bursts?
Nah, there's still ~250% of the float shorted, apparently. The shorts have doubled down.
The (maybe a bit of a conspiracy) theory is they shorted more knowing that Robinhood and other brokers would limit buying today.
The (maybe a bit of a conspiracy) theory is they shorted more knowing that Robinhood and other brokers would limit buying today.
I see. Thank you for the follow-up. Honestly I think your money would go further contributing to a politician that would try to advance reform, but I acknowledge that's not a universal strategy.
You're not missing anything, pyramid scheme at the expense of latecomers, Robinhood or otherwise.
If there is one big broker, and the broker is free to control what can be done, and the volumes... The broker is god.
Regulation coming for all sides soon.
Regulation coming for all sides soon.
If it was decided that most people could only sell stock, not buy it - who exactly is buying the stock?
It was blocked in Robinhood's UI, but on the back end the hedge funds could trade at will. And the hedge funds had to buy a lot of stock to cover their shorts, so it was handy to get the retail buyers out of the way.
How do you know this ?
I read a bunch of articles today and yesterday. Robinhood outsources their order execution to Citadel, which handles more than just Robinhood trades.
Or actually, "outsources" is a misnomer because Citadel pays them for the orders, so they can make money front-running them. That's why Robinhood trades are "free" for their retail users. You don't pay a fee but you get a slightly worse price.
Citadel also, fwiw, just loaned $2.5B to a fund with a lot of short exposure to GME.
Or actually, "outsources" is a misnomer because Citadel pays them for the orders, so they can make money front-running them. That's why Robinhood trades are "free" for their retail users. You don't pay a fee but you get a slightly worse price.
Citadel also, fwiw, just loaned $2.5B to a fund with a lot of short exposure to GME.
Hedge funds and other big players of course
Not all brokerages have banned buying so those who are buying are using a different brokerage. A lot of Robinhood users are now moving to other discount brokers like Webull.
Lots of big funds trading back and forth to depress the price it would seem. Look at the bid/ask volume. Looks like a ladder attack.
Fidelity at least still allowed trading GME. I assume most brokers did.
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The ones who shorted
Yeah fuck them
Look at the deadman walking
I don't believe them. I presume most people won't either.