<story><title>Robinhood denies claims that it sold GameStop shares out from under its traders</title><url>https://www.theverge.com/2021/1/28/22254857/robinhood-gamestop-amc-shares-sold-surprised-users</url></story><parent_chain><item><author>nightski</author><text>Obviously the situation needs to be investigated.  But I think there is a real possibility they did nothing wrong here.&lt;p&gt;Despite this, the main problem I see with Robinhood is that with it&amp;#x27;s gamified UI, ease of access, etc... these 99.9 percentile events are mainly what it is designed for.  It&amp;#x27;s encouraging people to pick up the &amp;quot;hot stock&amp;quot; on social media on a whim.&lt;p&gt;While there may not be legal repercussions for this, it&amp;#x27;s fundamentally incapable of it&amp;#x27;s core purpose.  If you are new to RH you might not realize that the platform has outages all the time and it costs its users a lot of money.  It is straight  up dangerous to trade on this platform for the purpose which the UI glorifies.&lt;p&gt;Index funds have done a lot more to democratize finance than RH in my personal view.  While commission free sounds fantastic, it comes with some very large hidden costs.</text></item><item><author>gruez</author><text>If you read the other threads it&amp;#x27;s clear what&amp;#x27;s happening is that robinhood&amp;#x27;s product isn&amp;#x27;t designed to cope with high volatility[1]. Is this a flaw in their product? Yes. But then again, they are a &lt;i&gt;discount&lt;/i&gt; brokerage for a reason. It&amp;#x27;s not any different than any other consumer product that shits the bed during 99.9 percentile events.&lt;p&gt;[1] Specifically, they&amp;#x27;re required by the DTCC to put up a deposit on every trade their users make. During periods of low volatility this is fine because they can come up with the money, but when volatility goes up so do the deposit requirements, which can cause them to become insolvent. This is further compounded by the fact that their product invisibly hands out margin, eg. &amp;quot;instant&amp;quot; deposits of $1000, or giving you the money before it settles (2 days later).</text></item></parent_chain><comment><author>mike00632</author><text>There are worse problems with Robinhood, all of which I&amp;#x27;m surprised people aren&amp;#x27;t bringing up more:&lt;p&gt;1) They&amp;#x27;ve had outages where 100% of stocks were unavailable for trading.&lt;p&gt;2) Their business model is to offer their users inferior prices and then collect on the arbitrage (Yes, this is illegal. Yes, they are in trouble with the SEC over it).&lt;p&gt;3) Robinhood isn&amp;#x27;t transparent with their users about the risks of trading options and trading on margin. Some of the barriers they&amp;#x27;ve removed for their users to make risky bets were there for regulatory reasons, it&amp;#x27;s not just a matter of their app being over-gamified.</text></comment>
<story><title>Robinhood denies claims that it sold GameStop shares out from under its traders</title><url>https://www.theverge.com/2021/1/28/22254857/robinhood-gamestop-amc-shares-sold-surprised-users</url></story><parent_chain><item><author>nightski</author><text>Obviously the situation needs to be investigated.  But I think there is a real possibility they did nothing wrong here.&lt;p&gt;Despite this, the main problem I see with Robinhood is that with it&amp;#x27;s gamified UI, ease of access, etc... these 99.9 percentile events are mainly what it is designed for.  It&amp;#x27;s encouraging people to pick up the &amp;quot;hot stock&amp;quot; on social media on a whim.&lt;p&gt;While there may not be legal repercussions for this, it&amp;#x27;s fundamentally incapable of it&amp;#x27;s core purpose.  If you are new to RH you might not realize that the platform has outages all the time and it costs its users a lot of money.  It is straight  up dangerous to trade on this platform for the purpose which the UI glorifies.&lt;p&gt;Index funds have done a lot more to democratize finance than RH in my personal view.  While commission free sounds fantastic, it comes with some very large hidden costs.</text></item><item><author>gruez</author><text>If you read the other threads it&amp;#x27;s clear what&amp;#x27;s happening is that robinhood&amp;#x27;s product isn&amp;#x27;t designed to cope with high volatility[1]. Is this a flaw in their product? Yes. But then again, they are a &lt;i&gt;discount&lt;/i&gt; brokerage for a reason. It&amp;#x27;s not any different than any other consumer product that shits the bed during 99.9 percentile events.&lt;p&gt;[1] Specifically, they&amp;#x27;re required by the DTCC to put up a deposit on every trade their users make. During periods of low volatility this is fine because they can come up with the money, but when volatility goes up so do the deposit requirements, which can cause them to become insolvent. This is further compounded by the fact that their product invisibly hands out margin, eg. &amp;quot;instant&amp;quot; deposits of $1000, or giving you the money before it settles (2 days later).</text></item></parent_chain><comment><author>vincentmarle</author><text>&amp;gt; But I think there is a real possibility they did nothing wrong here.&lt;p&gt;They did blatantly lie about their liquidity problems. They didn&amp;#x27;t mention it in their fluff blog post. Their CEO smirked on national TV and insisted it was not about liquidity. Turns out it was. That&amp;#x27;s the problem.</text></comment>