Current Events > Shouldn't the Robinhood owners go to jail?

(+) Yeah! (+)

This is a legit question and not one of those questions that are meant to be a comment. I am out of by dept when it comes to understanding many of the stuff with stock. I made 4 dollars today and took my money out because I was scared that it would go down. That is about much I don't know about Stock. So if I am wrong please let me know.

But people were still trading and buying gamestop. They stop users from buying, and yet let them sell. This artificially pushed down the price of gamestop stock. Thus they stole from everyone who had gamestop stock and cost them to lose money.

---

Naming something that robs from the poor to give to the rich after a man who robs from the rich to give to the poor is a bloody brilliant strategy for entrapment.

<_<

I get how the people that bought GameStop stock got a bunch of money from it, but I don't understand how it made rich people lose billions.

---

Yea they should be punished. I didnt use them cause I don't know anything about how the stock market works. But they shouldn't just decide to stop people from buying

Bad_Mojo posted...

I get how the people that bought GameStop stock got a bunch of money from it, but I don't understand how it made rich people lose billions.

The way shorts work, is the hedgefunds "borrow" the stocks for a short time in the hopes the price will get put into a more favorable position for themselves so they can resell the stocks and profit off the dividends. What WSB did was drive the prices up, so not only do the hedge funds have to purchase the stocks now at the higher prices, they also are paying huge interest rates on them from the companies.

---

pogo_rabid posted...

The way shorts work, is the hedgefunds "borrow" the stocks for a short time in the hopes the price will get put into a more favorable position for themselves so they can resell the stocks and profit off the dividends. What WSB did was drive the prices up, so not only do the hedge funds have to purchase the stocks now at the higher prices, they also are paying huge interest rates on them from the companies.

I still don't really get it, tbh. Are they the ones that have to pay up then when these people sell their stock? Like, it's not GameStop as a company that has to pay $325 to people when someone sells their 1 stock, but these hedgefund people?

---

Bad_Mojo posted...

I get how the people that bought GameStop stock got a bunch of money from it, but I don't understand how it made rich people lose billions.

@Bad_Mojo

When you buy a stock, you purchase it at a set price and then you later sell it a different price. Your risk is the amount you purchased. So if you bought $100 of stock, you have $100 of risk, because the stock could go to zero. You want the stock to do well in order to profit when you sell it.

Conversely there is short selling. This is when you sell shares that you dont own (so you own negative shares, in theory), and you eventually buy the share back. You are typically borrowing shares from a brokerage firm when you do this, and you hope for the stock to go down in price, since you want to initially sell high and follow up with a low buying price. However, unlike with buying stocks, when you short sell, your risk is infinite, in theory. Why? Because there is no limit to how high a stock price can go.

Now... there are mechanisms in place to prevent people from holding onto a shorted stock when the price rises to a point where they could no longer afford to buy it back. You need to have enough collateral to cover your shorted position. If the stock gets to a certain point where you can no longer cover the purchase price, then your shorted stock is called, meaning you are forced to buy it back.

GameStop is a company that is seemingly destined to go bankrupt, as their business model relies on buying/selling used games, as the industry becomes more and more digital. Because of this, many hedge funds shorted GameStop to a ridiculous degree. So what the Reddit investors wanted to do was buy so much of the stock, that the hedge funds themselves would have their short positions called.

Does that make sense?

---

Rich people will never be punished.
---

They automatically forced people to sell losses that definitely has to be illegal. Might aswell be theft

LightningAce11 posted...

Rich people will never be punished.

Martha Stewart was that one time

---

@The_Popo

Thanks for all of that. I makes better sense now, but not all the way. Don't worry about it, though, I'm sure I'm at my peek understanding now, lol. I'm not very bright when it comes to this sort of thing

---

@The_Popo

Thanks, at least for me that explains a whole lot. Someone else asked about this before and there were some people like go to google. But honestly that is the clearlist I have ever heard it explained. There are still some ??? but that makes this situation a lot clearly at least for me then it was before I made this topic. Also thanks for Mojo for asking the question. (edit I just saw Mojo post almost the same message lol)

---

No problem. And as for why Robinhood stopped allowing purchases of GME (and other securities), I read this article today, which provided the first logical answer Id heard as to why they legitimately had to stop allowing purchases from occurring temporarily. Everything before that was just we had to do it for collateral purposes, but they never gave specifics. This article gave an explanation, and I think it makes sense. It sucks that it happened, but it makes sense:

https://finance.yahoo.com/news/robinhood-ceo-refutes-game-stop-hedge-fund-conspiracy-theory-and-reveals-what-actually-happened-234600703.html

In particular, this part explained it:

A clearing system built on modern technology

So what are those regulations? Without going into too much detail, brokerages like Robinhood typically route trades through a clearing house, which helps streamline the trading process until customer trades, like buying GameStop shares, settle. Usually, that process takes a couple of business days to settle and the clearing house taking on that trade is required to put up collateral on behalf of the broker to help facilitate a trade forward as an intermediary. But when volatility strikes and shares move up and down over those two settling days, that process can become prohibitively expensive.

That would align with the same reason provided to Yahoo Finance from Webull, another free stock trading platform and direct competitor to Robinhood, that also briefly suspended buy orders placed by customers Thursday for GameStop, AMC, or Koss shares. Both CEOs pointed to those same clearing house regulations as the reason for suspending share purchases.

It wasnt our choice, Webull CEO Anthony Denier said in an interview Thursday. Our clearing firm gave us a call and said were going to have to stop allowing new opening positions in the three names: [AMC, GameStop and Koss.]

In fact, the increased volatility around those stocks, including GameStops 300% rise this week, made it prohibitively more expensive for Apex Clearing, Webulls clearing house of choice, to hold the liability of those shares while the trades placed by customers on Webull settled. The cost of clearing those things have gone up by 3X overnight, he said.

Our clearing firm simply cannot afford the cost to settle those trades, Denier said at the time. We cannot use customer funds to front that cost due to regulation so the clearing firms have to go into their own pockets to do it and they simply can't afford the cost.

Early Thursday afternoon, while buying certain securities on Robinhood remained suspended, Webull quickly restored purchases on GameStop and AMC only after Denier said Apex instructed him that the outside clearing house had been able to secure additional funding and negotiated collateral levels with the final intermediary in the settling process, the Depository Trust & Clearing Corporation.

Where Robinhood differs from Webull, however, is that it doesnt use an outside clearing house. Rather, as a 2018 Robinhood blog post explains, the trading platform decided to cut ties with the same clearing house Webull used, Apex Clearing, to instead build the technology in-house. The blog post celebrates the achievement, noting that its Clearing by Robinhood platform was the only clearing system built from scratch, and on modern technology, in the last decade.

It was an interesting move, Denier notes, considering running clearing operations tend to be extremely capital intensive and very heavily regulated due to collateral requirements. The upside, however, is that a firm stands to gain substantial revenue by adding the ability to utilize customer assets through the process and can be a big moneymaker in the brokerage business.

---

The problem isn't just that they stopped allowing purchases.

They actually forced some people holding stock to sell at bad prices and losses. That's basically theft

In the history of humans we invented corporations so that it is difficult, often impossible, to hold actual people accountable for negative actions taken on behalf of the corporation.

---

No but in the future yes.

Let me explain. They brazenly and openly manipulated the market in an immoral but legal way. They basically stopped allowing their benefactors from losing money by making all trades on their brokerages one directional. You can only sell you can't buy which means that the stock will lose value considering how much of the market for this stock they owned.

It was legal when they did it but it shouldn't have been. We need to make laws to prevent what they did from being legal.

2Pacavelli posted...

The problem isn't just that they stopped allowing purchases.

They actually forced some people holding stock to sell at bad prices and losses. That's basically theft

I agree with that. There really shouldnt be any cause for that to happen.

---

2Pacavelli posted...

The problem isn't just that they stopped allowing purchases.

They actually forced some people holding stock to sell at bad prices and losses. That's basically theft

Im not defending RH but its likely because the margin maintenance cost went up so peoples margin went down, thus they got margin called and RH had to liquidate some of their holdings.

I havent seen an example of what happened to know for sure, but my margin limit went from $10k to around $2k, and then I bought back calls for AMC and it went back up to $5k. My margin used was at $2.5k, so at the lowest point I was below my margin line and was warned daily to stay above. I made it above everyday bur each morning during spikes Id go below, just not enough to be margin called.

If those people deposited more funds they likely wouldnt have sold any of their shares. Not saying there couldnt be other reasons but Id be willing to bet it was people using margin that it happened to.

---

Robin hood stopped working when the market crashed last year so anyone who had positions rapidly loosing money they couldn't sell the stock all day.

They are the most corrupt and incompetent brokerage firm. They deserve to be sued.

---