Ultimately Robinhood screwed up, so I don't know if they really want to expose themselves any further by trying to go to court with any of these people. That would do more damage to their reputation/valuation than resolving these cases as quickly and amicably as possible.
I personally can't believe this is still unresolved, though. The original $50k Apple puts guy uploaded the video last week, and these copycats were still able to exploit the issue. As on right now, I don't think it's yet fixed. Why didn't Robinhood fix the bug over the weekend? Why aren't they treating this like a massive legal issue/regulatory violation? It's so strange.
Which leads me to believe this has already happened and Robinhood is falling apart organizationally as they realize they don't have enough money to cash everyone out. Which in turn means they need to keep it quiet or else there will be a "run on the bank".
Another famous case is user "1ronyman" who opened up a massive options spread that had a potential loss of $500k which was 50x bigger than his account . Proper risk calculations would never let him make the trade in the first place but Robinhood did and likely had to take the loss.
It shows the dangers of playing fast and loose as a "tech company" in heavily regulated and complex environments like fintech.
He went from $250,000 to $50,000 in debt and as I said, isn't going to pay anything (as far as I know).
What SIPC does: https://www.sipc.org/for-investors/what-sipc-protects
And thankfully Robinhood Financial LLC of Menlo Park CA is a member: https://www.sipc.org/list-of-members/R
I would assume there is almost no one with over $500,000 using Robinhood, but if so, you better get your money out now.
Companies rarely absorb losses due to "abuse" by their users. Even when it is entirely the fault of the corp. I'm sure they have small print somewhere that absolves them of all responsibility for trades that do not meet some arbitrary guidelines.
It would likely require a class action lawsuit by the users, and get dragged out for years. They have more to worry about from the SEC on this then paying their users, if history is a predictor for this.
Brokerages are exposed to a lot less of it than e.g. credit cards, because it isn't baked into the model in the same way (and, indeed, the opposite is baked into the model), but it has been known to happen. See the Interactive Brokers 2018 annual report:
Over an extended period in 2018, a small number of the Company’s brokerage customers had taken relatively
large positions in a security listed on a major U.S. exchange. The Company extended margin loans against the
security at a conservatively high collateral requirement. In December 2018, within a very short timeframe, this
security lost a substantial amount of its value. The customer accounts were well margined and at December 31,
2018 they had incurred losses but had not fallen into any deficits. Margin shortfalls were met in a timely manner
by delivery of additional shares by the customers. Subsequent price declines in the stock have caused these
accounts to fall into deficits, despite the Company’s efforts to liquidate the customers’ positions. Through
February 27, 2019, the Company has recognized an aggregate loss of approximately $47 million. The maximum
aggregate loss, which would occur if the securities’ prices all fell to zero and none of the debts were collected,
would be approximately $59 million. The Company is currently evaluating pursuing the collection of the debts.
"Whose money did IKBR lose?" IKBR's. (Mechanically, it's a hit to their shareholder equity, which you can verify with toy math if you like playing balance sheet games.)
"What stock was that?" A Chinese firm with no operations which reverse-merged with a NASDAQ-listed entity to do a pump-and-dump. https://www.bloomberg.com/news/articles/2019-04-29/china-fir... c.f. https://hindenburgresearch.com/yangtze-river-port-logistics-...
If that’s the case you can expect the relationship to change. Robinhood will either lose some capabilities or will pay more for clearing.
"The bank collapsed in 1995 after suffering losses of £827 million (£1.6 billion today) resulting from fraudulent investments, primarily in futures contracts, conducted by its employee Nick Leeson, working at its office in Singapore. "
Leeson was hiding losses fraudulently in error accounts as a malicious internal actor.
In these cases, clients are being extended credit they likely cannot underwrite, leaving RH exposed and liable to any losses theirselves.
This does not seem to be the case for RH unfortunately. They will have to explain why the detection / escalation failed for this issue, why no statements were provided, why it was not spotted by internal analytics/checks, why the pre-trade checks let these trades go, etc. They will probably end up with a huge fine.
Disclaimer: I work in a hedge fund that is SFC regulated. I expect the SEC to have pretty much the same policies.
I was working at a fairly large hedge fund through the 2008 collapse that saw a huge loss due to a 40:1 leverage. Nearly bankrupted the firm. Through September and October, the lot of us working there thought we were doomed and were awaiting the layoffs that never came. As a result, the firm put in a self imposed leverage limit of 10:1 amd divested itself of less liquid assets like bank loans. We held around $20B USD in bank debt that was toxic and couldnt find a market for. No bailout, but something like 60% of $24B USD evaporated in a month. It was all made back in about 18-24 months, though. Crazy times...
Peanut gallery: “Bust trade” has a technical meaning, to tell the counterparty that the trade was in error and pretend it never happened. There are limited circumstances where this is possible. This is different from e.g. “We’re force liquidating these positions.”
The criteria for clearly erroneous trades are incorrect price, size or security though so I don't think this would qualify.
Most likely scenario here is that there is an investigation into fraud and that any gains here get forfeit but users are still required to make good any losses. Separately I would expect RobinHood gets a hefty fine as well.
So, it's a cash flow of billionaires -> teenager margin account -> billionaires.
"He stole from the rich, and he gave... Well, he airdropped the money over a gated billionaire neighbourhood." doesn't make the most catchy song for a folk hero.
RobinHood is essentially lending unlimited money to the teenagers in question. Assume, as an oversimplification, half of them will win big, and half of them will lose it all.
For the wins, the teenagers will keep it all, and for the losses, RobinHood will have to pay for it, because the teenagers don't have the money and will declare bankruptcy if RobinHood tries to recover it. This is a net wealth transfer from RobinHood to the teenagers.
The net wealth transfer looks like this:
teenagers: +lots of money
traders on the other side of the transactions: approximately +0 (wins and losses cancel out)
RobinHood: -lots of money
You can play games with which money comes from where, but you can't deny the way the money is flowing on net.
Market makers have their place, and you wouldnt have the liquidity you'd like if they weren't there. Market makers face relatively low risk as they dont generally hold positions for long, but they can also face severe penalties if theyre supposed to be in the market, but are not. My first boss was fired over a potential $600K USD fine because he took us out of the Options market (as a market maker) for an hour (potential fine was $10K/minute) and refused to accept accountability for his actions.
Also, trades are typically matched on a first in, first out basis with price/time priority. Market makers respond to messages that are essentially a request for liquidity if an appropriate contra order is not sitting on the exchange's order book.
Who gets paid commissions depends on what type of entity is on the other side of the trade and what agreements are in place with the meriad of counterparties involved (e.g. if you want to buy 10K shares of a company, that could be broken into, say, 20 trades of various quantities and prices below a limit until the quantity is fulfilled).
If you only have a few hundred or thousand to start with, you can gloat about how you only really lost that much while theoretically owing millions, but you still gave up 100%.
1) The user /u/ControlTheNarrative (CTN) made plenty of posts before losing the money where he made it very clear he knew exactly what he was doing. He had a post where he spelled out exactly how to gain the extra leverage and that his "personal risk tolerance" meant he could handle 25:1 leverage. Additionally, his response after the fact was something along the lines of "once I earn another $2000, I plan on doing this again". This kid didn't just click a wrong button and end up with the extra leverage, he was well aware of what he was doing.
2) Take this one with a major grain of salt, but based CTN's comments in the original posts and some comments by other users, it seems like this might not have been the first time CTN has used this exact trick to blow up an account. When the video was first posted, multiple commenters mentioned that he'd done it before and some of CTN's comments after the fact seem to hint at that. Again, take this with a huge grain of salt since I have nothing concrete to back that up.
The last time RH was in the news for some user losing way more money than they had (IR0NYMAN) I actually felt for the user a little bit and can understand why RH (supposedly) didn't go after the money after the fact. IR0NYMAN was creating box spreads, which can be a legitimate strategy, although they are very hard to find a situation where you can make money with them. That user stupidly didn't understand RH's rules around options exercise which is how he got screwed, but had he been able to hold all his contracts to exp (like European options allow) he actually would have been fine.
I can understand RH writing off IR0NYMAN's debt because it didn't seem like the user truly understood what he was doing, but this one feels different, IMO.
/pol/ and /b/ are only two boards out of about 80
Doesn’t RobinHood have these disclosures and gates?
I'm not sure if there are any consequences to lying about your experience, but in principle, you are claiming certain facts in writing, not just saying you read a disclaimer or educational material.
Whether RH goes after them is a totally different story though. You can't squeeze blood from a rock.
on a more serious node: RH should close the loops and be thankful that someone is finding these bugs for free - well almost
Trust is everything in fintech. Now that this story has moved from one obscure subreddit to Bloomberg I don't know how they start to reclaim it if they cannot calculate numbers correctly as a brokerage.
The consensus on /r/wallstreetbets is that Robinhood is a joke, which is pretty much the last thing you want to be thought of as a financial services provider.
This is the financial equivalent of forgetting to check password on a login form. It's that stupid.
Yeah, this is why the scenario is unique to most other r/wallstreetbets losses. With a good attorney the guy may come out of this relatively unscathed.
Yeah, but when this stuff becomes mainstream fodder it becomes more embarrassing to regulatory agencies if it is left unresolved in the public eye. The box spread thing wasn't on the frontpage of Bloomberg/CNBC AFAIK.
To me, it looks like a bunch of people on Reddit found a bug and then, extremely ill-advisedly, exploited it flagrantly in real-money accounts they controlled. Based on my understanding of the situation, which may be weak, I'd be a lot more worried to be one of these customers than I would to be RH at this point.
First, the user exploits the bug to build up a massive pool of margin. Roughly, this is equivalent to taking out a $50,000 loan from Robinhood
Second, the user buys $50,000 of soon to expire options. Roughly, this is equivalent to pairing with another (innocent) trader, each putting up $50,000, and flipping a coin for the pot.
If the user wins the coin toss, then Robinhood is fine: the user pays back the $50,000 he borrowed, keeps the $50,000 he won, and Robinhood nets some small amount of interest for their loan. However, if the user loses, Robinhood never gets back their $50,000 dollars. That money is now in the possession of the random trader who was on the other side of the coin toss, and there's no way to get it back because that trader legally won it. The user who ran the scam owes Robinhood $50,000 but that debt is close to worthless.
It doesn't really matter who is responsible. Even if Robinhood prosecutes everyone who perpetuates this scheme and sends them to jail, they'll still never see their money again.
Seems like a better game if the other party is not so innocent, or independent...
There's not much incentive here to do that, anyway; it doesn't increase your expected value over the original coin flip.
Either they have a working portfolio valuation model, and they missed this rather obvious case of linking a written call to its underlying, or they don't have a proper valuation model at all. If they actually do portfolio valuation by simply valuing each line and adding them, then it's not just wrong but gross incompetence. It would not be the first broker to blow up due to mispricing clients derivatives portfolios. The idea that a startup is letting millenials trade derivatives like this is absurd in the first place.
But the $8 billion question is: are we talking about an obscure bug, a missed case in an otherwise perfectly sound valuation and risk management model, or is it actually a case of dodgy valuation and risk modelling? Which implies that many well-meaning clients are also seeing the wrong portfolio value, and trading with invalid margins?
Again, I don't have the details so I don't want to speculate too much, but apparently they've had similar "bugs", so it's possible that their entire valuation and risk model is dodgy. It has happened to more reputable organizations.
If their stuff was generally sound except for this, they would have shut down margin trading until the bug is fixed.
I don't think small bugs in high quality shops would fall under this argument.
For brokers in particular, they are highly regulated and I can't imagine them not ending up with a nasty investigation+large fine from regulators over this.
I was pointing out millenials in particular because it's the population targeted by those startups, whose business models is more or less implicitly: millenials have no clue about money and finance. Which is true, but also unethical.
Older millennials are approaching 40. The majority of hacker news members are probably millennials
I don't know if it would be bad PR... The guy very deliberately leveraged himself because he thought he'd gain social approval from his peers at r/wallstreetbets
It's a great public service announcement for: just put your money into index funds and stop trying to gamble on stock earnings.
Some people are richer, either because they have good jobs, inherited or had prior success, so they lose more and the community enjoys their posts more.
The idea that you would do something stupid that costs you more money than you could afford (and possibly gets you into more trouble) just so that a group of people can laugh at you and make jokes at your expense is ridiculous, but I get that some people really crave that sort of attention. It goes a bit far to say that they get "social approval" from the community though.
If I believe index funds are going to have a positive return, why not try to lever it up as high as possible? For example TQQQ (triple leverage) looks pretty enticing compared to QQQ.
Can you explain why that is? I would have expected that your gain or loss from the leverage funds relates only to the difference in price between when you purchased and when you sold (multiplied by the leverage).
Hence why it's reset daily, as the other two responses explain.
And in case it's not been made clear enough: it's the very opposite of a sound investment. It's very much a risk management / trading instrument. It's something you would trade as a hedge or leg of a complex trade; not something you want to hold by itself.
SSO is 2x leveraged SP500
Check out the chart since 2007 versus the SP500 index to today. I'm seeing 211% return for SSO, 113% for SPY.
Just remember that we've pretty much been in a full on bear market ever since the last recession. Whether or not terrible things would have happened to SSO if we experienced a true recession/crash and whether or not you would actually recover/beat SPY, I have no clue and am not qualified to say.
But, based on the cherry picked '07-'19, yes, SSO (2x SPY) beats SPY (1x SP500) 211% to 113%
In short, assuming a normal distribution, your max leverage ratio should be the future expected returns divided by the expected variance.
I’m not at a computer right now so I can’t run the math on real S&P returns, but assuming 10% returns and 10% vol and a normal distribution, the highest leverage ratio you would ever be able to justify is 10/10^2 or 10x leverage.
In my blog post I looked at the beginning of 2018 up to present. The ideal leverage ratio according to my equation (I’m sure it’s not novel, but haven’t been able to find anyone else talking about it), is 2.99x.
Of course, the more skew or kurtosis the distribution has the less accurate this equation becomes.
Right now I’m working on a hypothetical S&P ETF that adjusts leverage bases on forecasted volatility and returns. Almost impossible to get right, but my preliminary model has outperformed (not risk adjusted) any fixed leverage I’ve thrown at it.
Second, my analysis was from the beginning of 2018 to present. Using that data, the ideal leverage ratio is 2.99x.
Third, the ret/var model put forth in the post assumes a log-normal distribution. The less log-normal the returns are, the less accurate it becomes. Excess kurtosis or skew will definitely affect the accuracy of the model. So the model would probably be fine if the market was up-up-up or down-down-down, I haven’t encountered any periods in which the non-normality of the distribution is so severe that it completely breaks the model.
Leverage is almost always the secret sauce to institutional strategies. And if we’re talking about quant funds, without leverage they wouldn’t exist.
This sounds like perpetual motion to me. It's like Moore's law - no matter how long it's gone on for, it can't go on forever.
If everybody believes that, and people who actually control trillions of dollars do it on a massive enough scale, just borrow money and invest in stock, then it has to break things down at some point, doesn't it?
Banks are a little different and while the rules are complicated, big banks need to have around 3% of their total book at hand. Or in otherwords, they have around 33x leverage. Because of the leverage, banks need a very diversified uncorrelated portfolio in order to reduce volatility. No bank would stuff all of their money into equities, the risk of ruin is too high.
Also, there’s another perspective to look at your question: the efficient market hypothesis. In short, EMH states that in general, all investments have the same or trend toward the same risk/reward profile. That is, the ratio or slope of the returns vs volatility should be the same. With debt/credit, there are two primary options: you get paid back with interest or you don’t (let’s ignore bankruptcy). With equities you are assuming a lot more risk, the stock could go up or down or whatever. Since you are assuming more risk with equities than credit, it would violate EMH if you weren’t compensated for the extra risk.
This however, doesn’t explain why equities perform so much better than everything else. This is called the equity premium puzzle .
So maybe you’re right? No one really knows. Maybe the jig will eventually be up? Or maybe not, no one really knows.
- I don't want to invest on margin unless the interest rate is significantly lower than stocks generally return
- as a rule of thumb, 7% is a conservative estimate for stocks in the long run, while a typical broker charges close to 10%. So it seemed like a non starter.
- however, it is possible to find rates as low as 3-4%, so then the question becomes how much leverage to use?
- my logic was, what kind of drawdown is plausible if you invest at a market peak? It appears based on known history that -70% could happen. Therefore it would be best to limit leverage so that more than a 70% decline would be needed to cause a margin call.
- which seems to lead to borrowing no more than 25-27% of one's equity.
and yeah, there are failures, and they lose their shirts, and the beat goes on. but you're probably not going to make very much money (=> last very long) if your rate of return is the same order of magnitude as the collateral you're taking out. it's just not worth it from the POV of the bank.
I don't think they actually want you to trade on margin. It's just, some people are addicted to volatility / the chance of "sweet gainz" and they see "regular Joe" posting pictures of turning $1k into $100k by making "the correct lucky" options trade, so they are down to try to do it too.
I don't think that's Robinhood's message. It's just a side effect of having an easy to use app with no fees.
Have you used RH? I use it for exactly your example, every other paycheck I put some in VOO and a bit on some individual stocks. They push Robinhood Gold so hard. There used to be a glowing gold banner at the top of your portfolio advertising to join gold and get $10,000 today or whatever.
LOL WAT? If you are using the margin feature of your brokerage account it should be implicit that you understand you will lose more money than you have. Many people have bankrupted even due to a temporary fluctuation in pricing causing margin calls. This is true even if you don't trade options, just less likely so.
Personally I trade options but I don't enable the margin feature on my account. Then the worst case scenario is I lose everything I put into the account; I wouldn't lose the money I didn't put in my account.
Can. It is isn't a certainty for those that understand, but if you don't understand that will is probably correct.
You’re also on the hook for any excess losses that are not covered by cash in the account. They can and will go after the rest of your external assets.
Some states are better about protections against creditors than others. Don't live in a state with poor creditor protections (Florida is fantastic, Missouri is terrible).
So your 6% loan is now a 9% loan.
I never used credit from 18-25 aside from churning some credit cards.
And yes, Prime is low today.
Also, if you can make a play for real property: buy dirt. It's a good financial play to build equity/wealth.
Income and assets are king when underwriting a mortgage, credit less so (depending on investor desires of the mortgage backed securities).
https://www.hud.gov/sites/documents/4155-1_4_SECD.PDF (FHA Guidelines: Borrower Employment and Employment Related Income)
Maybe there's an upside for this guy after all. 2019 is weird.
The PR would be a disaster.
The original guy (CTN) stopped at 50k and posted the famous video where he basically lost everything but that's another story lol https://www.youtube.com/watch?v=A-tNkuYV4_Q
People were speculating that what would be the uppermost limit before Robinhood does anything and turns out you can even get $1m...
Some important aspects:
* CTN isn't holding cash, he's holding $F stock and offsetting ITM call options.
* The leverage he's getting isn't on a linear payoff. That is, it's not like I get a $1M loan on a $4k collateral. His position is more conplex and his payoff profile is nonlinear. I describe that more here: https://news.ycombinator.com/item?id=21457524
It's funny, and it's most likely wrong for RH to allow him to put on that position (in the unlikely event $F craters, RH is on the hook for _a lot_ of money).
But it's not as simple as explained in that reddit post.
To get the leveraged money he bought stock and sold CALLs against it. RH has a bug where they give you credit for the premium collected instead of reducing buying power.
If you think it's a good investment thesis, a better strategy would be to build a portfolio where you go long on a basket of stocks with "not too many female execs" and another, offsetting, short basket of stocks with "too many female execs". If you do that properly, you should be able to almost entirely eliminate market and industry risk and basically "amplify" your investment thesis.
For strict entertainment value, I rank it higher than any other site on the net.
They're really everything great and terrible about the internet and investing. I love it.
On the other hand, if the stock tanks you will still lose, though the premiums from your options you wrote will cushion your downside.
The Youtube guy owned naked puts, which is far riskier than covered calls.
Buying weekly OTM options is the "yolo" they do once they mess up Robinhood's margin into giving them hundreds of thousands of USD of buying power.
If you ever get such ridiculous margin you should buy things that have high chances of very small profit, such as selling deep OTM options or credit spreads. Wait for expiration, unfold the scheme, collect your profits, disappear.
If you leverage up to $1M a small 2% profit with 95% chances of success is an easy thing to achieve by selling options, and would pay you $20k instantly. In the 5% outcome your margin will just totally blow up, like LTCM in 2000, or the whole idiotic concept of Value-at-Risk in 2008.
On the other hand, if you aren't planning on running away from your losses, you shouldn't take the 5% risk of a 100% loss to make just $20k. Liquidate the options and put your money back in index funds.
5% probability of losing $4k
Not so bad (if you can get away with it).
For every share of $F he has, he also has an offsetting deep ITM call option he's written. He doesn't have $1M risk on - or rather, he doesn't have linear risk on.
The payoff for a covered call looks like this (sorry for the paint):
P is the price where he bought the Ford share. S is the strike price. S << P since he's writting deep ITM calls. The combined payoff is just the sum of the stock payoff and the call payoff.
As you can see, he's fine, as long as F doesn't tank. If it does, he's on the hook for some money. So he didn't lever up a linear payoff in the stock price, he levered up the payoff I showed above.
Really, everything is fine, as long as Ford share price stays above the strikes he wrote. If it goes under, CTN goes bankrupt and RH can't get their money back.
But this is a lot more subtle than getting 2:1 or whatever linear leverage.
Also, I'm salty because I submitted the same story before this was posted, but it died in the "new" queue.
>The problem arises when Robinhood incorrectly adds the value of those calls to the user’s own capital.
This is not precise. Premiums received from short options positions _do_ get added to your "capital" and show up as cash in your account. You will accrue interest, etc. on this cash like any other cash in your account. The premiums should _not_ increase your margin/buying power which is where RH made a mistake.
Eg, suppose FOO is trading at $100/share, and you have $5k of cash and $5k of free margin. You use all $10k to buy 100 shares, then sell a call option with a strike of $60 for $40/share.
Under RH's calculations, you have $5k of account equity, $10k of stock and $4000 of cash from selling the call. This qualifies you for a margin loan of up to $9k.
Under the correct calculation, the stock is only worth at maximum the $60/share strike price of the short option, since that is the cash you'd get if the option is exercised. So you have $5k of account equity, $4k of cash, and $6k worth of net marginable securities.
The advantage of this is that it treats out-of-the-money covered calls better. If you sold a call option on FOO with a strike of $105 for $2/share, you should have $200 extra free to spend on stuff. Selling extrinsic value should wind up generating net cash that users can use for whatever purpose they want. Selling intrinsic value, on the other hand, is selling a portion of the economic right to the underlying.
Of course it’s within his risk tolerance. He has the potential to turn $50K into a lot more money and would only lose $2k if it goes south (and it did.)
It’s going to be a sad day if Robinhood goes under because a bunch of gamblers lost Robinhood a couple million dollars. It’d also be sad for them if in later developments they find out their Margin Call feature didn’t work as advertised.
"Personal Risk Tolerance" = said by /u/ControlTheNarrative before losing $50k in AAPL puts
"Literally can't go tits up" = said by /u/1ronyman before his position went literally tits up (because one side was American options while the other were European options). the dude did his DD up until that difference between American and European contracts.
But first it would be a problem for the owners of Robinhood private stock as their shares are severely diluted for huge equity infusions.
And an outbreak of memes on Reddit:
People wondering what is Robinhood even doing, and that it's in violation of the federal law:
The best meme was someone saying, it’s now only a matter of time before Masayoshi Son invests in Robin Hood!
Neither does anyone on r/wsb, which is why it is entertaining.
Consider the DJIA here from 1919 to 1929: https://www.macrotrends.net/1319/dow-jones-100-year-historic...
See inflation here for 1920 to 1929: https://inflationdata.com/articles/inflation-consumer-price-...
See the massive fluctuations in inflation as well as the DJIA? After the New Deal and other reforms, we not only hit post WWII American growth but a relatively stable upward trend in the markets and policy with targets like stable economic growth and more recently stable inflation (currently I think a 2% target).
Regulation and restrictions plus Fed oversight has granted our modern economy relatively stable year over year growth and inflation. Stability means future predictions become ore accurate, economic panics/recessions can be not necessarily predicted but solutions approached strategically.
Deregulation and instability can make people insanely rich similar to the hyper leveraging of this whole RH thing but one usually has to either be the know like via have insider information or be prepared to tank everything for their own arrogance like when some guys tried to corner the gold market in 1869 (Black Friday) or the onion market in the 1950's: https://en.wikipedia.org/wiki/Cornering_the_market
This page where I pulled inlfation data is really neat. I'd recommend checking each decade with recessions: https://inflationdata.com/Inflation/Inflation_Rate/Historica...
Makes options trading available to these customers.
Screws up risk management by incorrectly adding the value of those positions to customer's margin liquidity.
Incurs losses as a result.
"If you take advantage of someone’s mistake to line your own pockets, you need to pay them back." -- if that were the actual governing law I can only imagine that many brokerages catering primarily to unsophisticated investors (not to mention credit cards, and many other financial services) would be having a pretty bad time.
If they're completely lacking an option pricing model... they're just not going to add one overnight. They'll have to add a standard model (most likely Black Scholes), come up with an estimation of volatility to feed into it (you can extract it from the market; implied volatility), and also solve the problem of linking derivatives to their underlying. In any case this is not a simple arithmetic accounting issue.
> Sacca used his student loans to start a company during law school, and when the venture proved unsuccessful he used the remaining funds to start trading on the stock market. By leveraging trades for significant amounts (discovering a flaw in the software of online trading brokers in 1998) he managed to turn $10–20 thousand dollars into $12 million by 2000. Eventually, when the market crashed, Sacca found himself in debt with a four million dollar negative balance. He negotiated to have it reduced to $2.125 million and had repaid it by February 2005.
What is the advantage of Robinhood over ETrade at this point?
This type of yolo nonsense and pure comedy value, from what I can gather.
I think Robinhood's valuation is probably nosediving off a cliff right now.
ETrade's margin rates are over twice what Robinhood's works out to.
User experience. It's just that much better.
This has the potential to end the company financially (at least until another round of funding bails them out) or regulatory (if they lose their licence over this).
That is why I specified moving. That should not be parsed as "sell everything".
My concern would not be losing my money/positions. My concern is Robinhood losing its license and then being stuck on a comically long cue while they hire 5 under-motivated temps to handle hundred of thousands of account transfers. Their customer support is already terrible now. I can only imagine what that incompetence + financial collapse + end of operations would look like.
I am assuming the prospect of being locked out of your accounts for several weeks/months would be stressful, not to mention the monumental task that may be involved in getting certain records back in place for tax season.
ACAT is not that simple. Most brokerages charge you a fee of upwards of $50 to do it. If the brokerage is going down and they must invoke an ACAT for you, they eat the fee. Again, it's misinformed to be incurring charges and even potentially taxable events because of your philosophical beliefs in the success or failure of a company.
As much as RH is in the news for screwing up, I think that they have stumbled onto something that the more established brokerages either (a) just don't get, or (b) cannot replicate without the risk of losing existing customers.
Are some of you actually concerned that your money is going to disappear overnight because it's in RH? I can assure you this is not a thing, unless you legitimately made very poor investment decisions with said money. Also, if this is the case, any of the above platforms will provide a virtually identical journey into poverty.
2. Inferior research tools
3. Fewer investment options (just stocks / etfs, no bonds or mutual funds)
4. Lacking support (ideally you don’t need this but having fantastic support can be nice over the long haul and most established firms have excellent support)
5. It’s only brokerage whereas pretty much anywhere else is going to allow you to consolidate retirement accounts
6. Tax reporting is a lot better in established firms but I might be dated here, looks like they built out some syncing tools in last year or so
I’m sure robinhood is fine & I wouldn’t be worried about losing money, and if it works for you great. But you can get a lot more from a bigger brokerage and I don’t know what they’re going to be able to do to differentiate now that free trades are mainstream.