"But these investors told The Verge they didn’t have options in GameStop or AMC and hadn’t purchased the stocks on margin. They had purchased the shares outright, they said, and were planning to hold onto them."
Enormous difference between having a margin account and trading on margin. A margin account simply means you're allowed to trade on margin, not that you have actually done so.
>Enormous difference between having a margin account and trading on margin. A margin account simply means you're allowed to trade on margin, not that you have actually done so.
You're technically trading on margin when you open a new account and trade before your cash has cleared. This is most likely what happened.
Still, this is a horrible message to show a user who is in that situation and who did not place a sell order themselves (message wording from the article):
“We’ve received your order to sell [#] shares of [stock] at the best available price.”
This is poor communication from RH. A preventable own goal.
Yes, but money takes a few days to clear. If you open a robinhood account right now, deposit 1000$, then buy 500$ of stocks you will be buying on margin because the money hasn't cleared yet. How many people buying gme waited for the cash to actually be in their account before buying? In a strictly cash account you would be forced to wait, invisible margin accounts was one of robinhoods "innovations"
This is directed at thatguy0900, but we have reached the reply nested limit...
What you and many Robinhood users probably are missing is that your trade actually does take days. Actually go read the Robinhood settlement period info.
This is not explained clearly, but it is essentially 3 days to settle (T+2). So if you sell a position you don't have the cash to buy for three days. If you have traded on Robinhood you have probably noticed that you "immediately" have the buying power from the shares you sold. That's not your cash, because it hasn't settled. For three days that's margin and therefore you could get a margin call.
The instant deposit is limited to $1000 (margin). But there were people saying they were forced to sell out of much larger dollar holdings. Those were probably people that sold out of one stock holding and then immediately bought into GameStop, AMC, etc... So they likely believed they were buying with cash, but they were in reality buying on margin.
Just to be clear, I don't think this is a good thing at all. A brokerage should not be invisibly providing you with margin, it should be very clear to users that this is happening.
Your trades don't take days, depositing cash into your account does. I imagine that applies to them as well, they just all already have 2 billion in there. They will also have margin accounts that gives them instant funding, like you do. Addmitedly I doubt they get their margin orders canceled very much when they buy risky things.
Not quite - it seems like when you deposit cash, some up to all of it is made available immediately for trading if you're on the default account settings. My guess is that most users believe that when they buy stocks with this money, they think it is cash when it is in fact margin, and these are the people who got margin called.
Hopefully this becomes more widely understood. It's definitely not obvious enough for their target market to understand, and it's not a stretch to say they try to obscure it.
They specify "options in GameStop or AMC" but if you have margin on any instruments or options which are at risk of being assigned you will also get margin called.
"But these investors told The Verge they didn’t have options in GameStop or AMC and hadn’t purchased the stocks on margin. They had purchased the shares outright, they said, and were planning to hold onto them."