TLDR; RobinHood has been irresponsibly (and possibly illegally) opening margin accounts and charging interest on their user’s behalf. Thus, it was never really free in the first place. (Well, they also got paid for the order flows, and gave you a shit deal on the bid-ask spreads. Which was also illegal)
Alright, Robinhood is a train wreck after a train wreck. I wish I was kidding, but in all honesty, you should probably stay the fuck far away from this app. Or you’ll regret it (probably).
Like honestly, just pay the $6 commission to actually own the stock at some brokerage you fucking degenerate.
Alright, so, let’s get down to some definitions.
What is Margin?
Margin is an extra line of credit on your account. It allows you to use it as a buffer, for extra purchases.
It basically gives you extra play money, for the price of interest. In layman’s terms, a LOAN.
The Broker is supposed to perform some Due Diligence and a background check to make sure you’re a reasonably safe degenerate gambler, and gives you a line of credit with some stipulations.
Things like, charging interest for the amount borrowed, and also making sure you aren’t all yolo’d in on one stock. They also require account minimums and other things.
In most cases, to get approved for margin, they’ll require you to fill out an application, run a credit check, and sign over the blood of your first borne. Typical stuff in finance.
On the plus side, with margin, you could short stocks. Which can leave you squeezed to infinity if you’re retarded.
This is why background checks exist.
Oh, this will probably be a good thing to help explain what a Margin Call is. A Margin Call is when you don’t meet the minimum cash/stock (equity) requirement on an account or the Margin Shares are losing too much value. When these conditions, either/or, are met, then your shares are in risk of being Margin Called. Which means you have to put more money in your account, or they’ll sell your Margin Shares and freeze your account until you pay back the loan. Don’t forget the interest.
Margin on an Account vs. a Margin Account
Margin on an Account, is a regular Account with some margin.
A Margin Account is entirely margin, even if you have money in it. (read the terms and conditions, because it’s not that simple).
The big difference is who gets to say what they own or do. In a regular account, you have the power.
In a regular account with Margin, the shares bought on margin are up to your broker’s discretion (these are Margin Shares). The shares bought with your money, is yours to decide.
In a Margin Account, all shares are Margin shares, the Broker decides what to do with your shares. To include if the broker wants to loan out those shares to cash in on some sweet interest.
Generally speaking, these are the three types of accounts you’ll see with margin.
Who uses margin? Degenerate gamblers and Hedge Funds. So, like, two sides of the same coin.
What did Robinhood do?
They opened people into Margin Accounts. Like, it’s standard, they hand one out to almost every new user. Which is like pre-approving a loan just by applying. (what is this, a covid PPP?)
Yep, no need for extensive background checks to make sure you’re not retarded yoloing into one stock. They threw you in the fully purple bar in the infographic, made by a genius artist, above.
It appears, as of 2016, Regular RH accounts are called “Robinhood Instant” accounts and are margin accounts.
You know that instant $1000 they let you trade with when you first sign up and deposit? That’s margin.
So these margin accounts would hold on to shares under margin, margin shares.
Which means you don’t own it. Robinhood is holding on these shares on your behalf. They’re called Margin Shares, because they’re bought on Margin. (even if you have cash that covers it).
That means, these accounts can sell your shares if they deem them for whatever reason. Like, to help out their hedge buddies manipulate the market to protect market integrity or whatever. (which is just an excuse to defend infinite losses from overextended retards being retarded and not hedging their bet like a hedge fund should)
Robinhood can also decide to loan out your shares, to say, some Hedge buddies that want to short a stock. Robinhood profits on the interest from loaning out your shares, and you don’t see any of that money. But if they ever decide that the stock is too volatile, bet your sweet ass that they’ll margin call you.
Which means selling your Margin Shares and requiring you to fork over money to cover the losses. Which is exactly what they did on January 28th, 2021. I won’t forget any time soon.
This statement was actually a lie, because there are reports of people being charged for Margin Interest on their non-Gold Account. So Robinhood was lying, straight up.
“if you’re not paying for the product, you are the product”
And to add on to that quote, “If you’re paying for the product, but you don’t know it. You’re still the product.”
No, for real, you should look at your bank statements associated with Robinhood to insure that you’re not being charged Margin Interest. Like literally, people are losing money, and you could be one of them.
If you have the cash in your account, make sure the shares you bought are CASH positions and not Margin shares. You can have them transfer Margin Shares to Cash Positions by giving them a ring, or just following the next advice;
How do I get rid of my Margin Account for a regular one?
Easiest way is to get a better broker. Lol, jokes (but, no, really)
You can downgrade to a Robinhood Cash account, but most of the people who are on Robinhood, probably don’t know shit about shit. I mean, I don’t. Doubt anyone else does.
So, in order to downgrade your account, you have to call Robinhood and have them do it for you. You lose out on the instant deposit, but I mean, do you really need a two day advance to fuck up your deposit in the form of a loan?
So Robinhood has been robbing you, loaning out your shares, and also selling your shares whenever they want. Because ‘volatility’ or whatever.
If you have a Robinhood Gold account, well, that’s a Margin Account. Which, as discussed, is different from having Margin on your account. If you still want your account to not be on margin, then you’ll have to turn off your Gold and lose those features to go to a regular Cash Account. Just remember, that downgrading from Gold turns your Account to Instant, so you’ll still have to call and change it to Cash (non-margin).
They failed at their fiduciary duty, were not clear to you, and lied (basically).
The Fiasco of GME
So, besides all the blatant retardation performed by Robinhood, there’s more,
Yes, they restricted buying and margin called people, by raising their margin requirements with no-notice. Great stuff, riveting really.
But if you also consider that the MAJORITY of accounts were margin accounts, and that the GME shares were bought on Margin. That would imply that Robinhood was the bagholder for a good chunk of those losses on GME.
You know, those people who opened a new Robinhood account, then invested 1k all in on GME even though their deposit didn’t clear or settle yet? Yea, those guys.
That’s right, Robinhood ended up the bagholder for new meme yeeting investors. And possibly for other accounts that had Margin Shares, and didn’t know it.
Someone else has a theory for what happened on the GME issue;
I mean, most accounts are Margin Accounts, and if switching them to regular accounts meant chasing down real shares, that would essentially force a squeeze. Because the Hedgies would have to pay back.
If RH, Apex, IBKR, every other clearing house, NSCC, and DTCC felt the need to restrict buying of GME shares in order to “protect the market”, why didn’t they also restrict selling of shares too?
I’ll give you a hint, it’s to mitigate a market breaking infinite gainz (losses for them) short squeeze that would essentially break the hedgies’ Margin Accounts leaving the Brokerages the bagholders. Which would then break the Brokerage’s Margin accounts making the DTCC and Clearing houses the Bagholder.
You might not be aware of this, but we’re not talking trillions of dollars. No, that’s a paltry sum compared to a Quadrillion dollars. So of course they would cry “MaRkEt InTegRItY”.
Yes, SIPC insurance that covers 500k in equity (250k in cash) is useless if it’s never used. You can debate philosophy, but you’ll only lose to my level or retardation. Also, it’s a scam.
In truth, they (the Market Makers, Clearing houses, and Brokerages) probably weren’t all circle jerking each other, but they could definitely be involved in a grand conspiracy. I mean, it’s not retarded for two people to make a phone call to decide what they’ll do on their platform.
Also, You have to think. They had to code in a “stop” on purchasing Meme stonks. So this was definitely more than just a ‘last minute’ thing. As if someone just orchestrated a halt on 10am with no notice and decided to send out mass messages saying “it’s FoR YoUr OwN GoOd”. Yea, if you don’t think they knew what they were doing on that, you’re the retard.
Like, think about it, jeez. It’s stupidly easy to conspire a grand narrative if all it takes is a couple of phonecalls. Welcome to the 21st Century. No need for secret occult robes, meeting in a dungeon on specifically the second harvest moon of the solar cycle. Just dial the number on your ZOOMie-Skype Whats-app and tell people directly what they should do and say. Make the worker bees in PR (public relations) spin it and make the code monkeys code it. Easy.
In all honesty, retardation is the root cause of all of this (probably).
Hey, I’ve heard from other retards that you can personally sue your brokerage if they fail to tell you the truth and violate fiduciary agreements. It was implied that it wasn’t a class action lawsuit, so you probably should talk to a legal practitioner of law and figure that out if you want some cash and cred. If true, I would love to see those personal law suits. I’m just a guy who gets his dick stuck in credit spread options.
I want this squeeze to be over with, that way I can go back to writing Op-eds on black markets and not the white-collar Wall-Street ones.
It would be juicy to hear what Robinhood has to say on the Congressional hearing or whatever on the 18th.
I’m only really writing about this, because I somewhat care about it. I also imagine that this would serve as some future historical archive. I also think it would be funny if some historian or anthropologist had to sift through satirical shit posts.
Unless you want to come find me in Sing Sing, til next time,
*Not Valid Financial, Legal, Life, or Any Advice