With today's incident of restricting trading of stocks Robinhood screwed it's IPO chances, may be it will start the downward spiral for itself.
Edit: This post has been very active. Can you guys also suggest on which platform to move to for trading after quitting Robinhood. It will be useful for all.
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Really sad for the people working there, they've created a good product. And it's not only Robinhoods fault. But if you pretend to be helping the "regular people" and then do a 180 once big money tells you to, be ready for the consequences.
While I do concede that that is legit, I do not think you knew that while you were arguing before... but alas. 🍽 time for me to eat my words
It’s also why investing can be much riskier than it seems - you’re playing with a labyrinth of regulations and systems, and there’s all these layers of competing interests.
Simply by taking our business elsewhere.
🦍
Wall Street only bails out its own.
Robinhood is SV.
They'll let robinhood rot unless robinhood can turn it around themselves
The Depository Trust & Clearing Corporation settles most listed securities transactions in America; in 2011, it did $1.7 quadrillion [1]. You've never heard of it unless you're a professional trader, but it's actually quite fascinating to read up on.
Trading looks instantaneous. But settlement takes a few days. In between are a series of credit agreements. From your broker to you. From the clearinghouse to the brokers. DTCC is the clearinghouse. Robinhood is the broker.
There are rules and contracts between DTCC and its members, including Robinhood [2]. Those contracts ensure that when you buy shares through your broker from a Robinhood customer, if Robinhood falls down two days later, there is collateral sufficient to make you whole. Those collateral requirements change in reference to, amongst other things, the volatility of the security. (If a broker falls down, the clearinghouse liquidates their collateral and makes their counterparty whole. More volatility means more chance the collateral will be insufficient.)
In this case, collateral requirements on GME went up. Because of its volatility. So while before Robinhood had to pony up collateral for a few shares of GME for every hundred it traded, it now had to, at close of business, pony up one hundred shares' worth of collateral for every hundred it traded. That creates a cash crunch. One that exacerbates itself with every additional trade in the security. If Robinhood fails to satisfy those collateral calls, they go out of business overnight. Into receivership. Done.
Most brokers have policies for these situations. Higher brokerage fees for securities on a schedule. Not making shares and cash from trades available until the trade settles, sort of like what banks do for large cheques. But I don't know if Robinhood is able to do that quickly. So instead they pulled the plug.
[1] https://en.wikipedia.org/wiki/Depository_Trust_%26_Clearing_Corporation
[2] https://www.dtcclearning.com/products-and-services/settlement/settlement-services/risk-management/296-risk-management-overview/2277-collateral-valuation-of-securities.html