Robinhood, TD Ameritrade, Charles Schwab cutting off retail investments

[Answer]

Crazy. Retail investors short squeezed GameStop and a bunch of others so brokers literally stepped in to cut them off from buying stocks to purposely crash the value

Shits gonna escalate

[Master Rock]

what do you think is going on? Are they (the whales) trying to cut off the little people or trying to protect the people?

[Answer]

im gonna start from the top for the people at home

short selling a stock is basically making a bet that the value of the company is going to go down. Let's say I see that game stop is worth $10 today but I think in 3 days it's gonna be worth $5. I basically sell it to you today for $10 with the agreement that I'm gonna buy it back from you in 3 days no matter what the price is.

3 days later, if game stop is worth $5 then I buy it for $5. but I sold it to you previously for $10. Meaning I made $5 off that sale. But if game stop is worth $15 then I have to buy it for $15.. meaning I lost $5.

So a group of people on reddit looked at some stocks, including gamestop and some others and saw that a lot of investors were making these bets that the value of gamestop was gonna go down. This is public information. So they all got together and bought up a bunch of gamestop stock to drive up the price.

so the people who are shortselling can really only do one thing to try to recover some of their losses... they buy more stocks in gamestop and hope to get the gains from it going up. that's why it's a squeeze, because you're either gonna take your losses or try to recover them by betting against yourself

all of this is perfectly legal though. Gamestop is a valid business and people have every right to buy it up. Unless there was some kind of insider information about how gamestop runs their company that caused people to buy the stock, which most likely wasnt the case, then all they did was take a very strategic gamble that paid off. At the end of the day, all short term stock buying/selling is just gambling.

But then today robinhood and a bunch of other brokers stepped in and cut off the ability for people to buy certain stocks that were being shorted. Meanwhile, the people who are career investors/hedgefund managers still have access to the market to buy and sell as they please.

This was definitely a move they made because some rich people (possibly even people who own these companies) were losing a shitload of money and they're rigging the game in favor of the wealthy. They're definitely gonna get hit with some lawsuits and it's going to turn into a large legal battle and *could possibly* end up with more regulation on the market to inhibit daytrading, which might possibly deter some people from investing which ultimately might hurt the stock market as a whole. I don't think it will be catastrophic, but the market itself is already a massive bubble with plenty of potential for future pushback to liberal policies which generally are counterproductive to the current wealth distribution. Shit is already volatile, and this is throwing gas on the fire.

I also think it's worth speculating on whether these lawsuits and bad press could *possibly* damage any of these brokers enough to put them out of business permanently. Another possible implication is that you could argue that Robinhood/Ameritrade etc. are overstepping their abilities despite being the owners of their own products. It's in a similar vein to how twitter and facebook were able to use their platforms to silence Trump. The 100% "free market" mentality is that twitter/facebook/robinhood etc. should all have the freedom to create the product they want without government intervention and if people don't like the things that twitter/facebook/robinhood are doing then people have a right to create their own social media platforms or brokerage apps. There's a conversation to be had about whether or not these tech companies are getting too powerful and need to have their products regulated more, and this could influence that discussion.

Robinhood is gonna say they're trying to protect the average investor who "don't know what they're doing" but that's a dead ass lie

[Answer]

Securities Exchange Act of 1934, section 9.

It shall be unlawful for any member of a national securities exchange directly or indirectly to endorse or guarantee the performance of any put, call, straddle, option, or privilege in relation to any security registered on a national securities exchange, in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.

[Ouch]

I'm going to read what Answer wrote, if he can write decently. Because I saw this the past 2 days on notifications on my phone about the whole Game Stop stock and Reddit. Going to read this when I get home, hopefully its in laymen terms because I'm not well versed in this type of thing.

[Eviction]

Just got an email from robinhood saying they limited buying temporarly.

[Ouch]

[Geno]

This shit crazy. They were breaking the bank on gamestop and these fuckers were paying out so much basically overnight that they ended purchases and you can only sell now. Fucking awesome. Wish ida known before it was too late

[JaysonFresh]

well put, Answer
I was never a fan of Robinhood and this obviously exposes them.

alt/cryptocurrency dogecoin next to moon.

[~RustyGunZ~]

Originally Posted by JaysonFresh

well put, Answer
I was never a fan of Robinhood and this obviously exposes them.

alt/cryptocurrency dogecoin next to moon.

Dogecoin 4eva

[Ajax]

For what it’s worth, I think it’s BS that they temporarily froze. (And, caveat, I’m a securities lawyer that routinely represents wealthy investors and funds.)

It’s a huge leap to make the automatic assumption that Robinhood and other brokers did it specifically to crash the value (leaving aside that putting on hold buying doesn’t crash value in and of itself, there needs to be a mass sell off). That’s definitely the most nefarious possible motive, but there are others. As a threshold matter, the people buying up the majority of the stock prior to yesterday were primarily funds cashing in on the ludicrous run (that admittedly Reddit started). The stock has been skyrocketing in after hours trading for several days, and retail investors don’t have access to that. So, the people that were making the most money were funds that didn’t short it originally. The collective buying power of the wallstreetbets folks that started this just isn’t nearly as significant as the funds involved. So, brokers have no incentive to crash the value if theyre trying to “help Wall Street.” For every firm that sold it short a month ago, there is another firm cashing in on the run.

You’re also seriously discounting the argument that what those redditors did was market manipulation. As a legal matter, you don’t need to trade on inside information to violate the 34 act. It’s the most obvious infringement, but it’s not the only one (pump and dumps, etc). Collusion to change a security’s price to be different than its real value is illegal (https://www.law.cornell.edu/uscode/text/15/78i). And numerous redditors involved have expressly said they did this intentionally to fuck over Wall Street funds. (Just imagine if funds got together and announced to the world that they were tanking stocks specifically to target retail.)

(You can obviously make the argument that Wall Street does that all the time because they’re all crooks, but as a general matter, the financial markets do tend to generally track fundamentals. There are obviously panics that drive stocks below value and bubbles that artificially increase them, but something like this NEVER happens, at least at this scale.) I’m not saying it’s a cut and dry case, but it’s plausible and shouldn’t be dismissed out of hand.

The fact that it was retail brokerages that temporarily closed (which disproportionately impacted retails ability to continue buying and thereby make more money than they otherwise did) is obviously troubling. But, there is something to be said about the “protecting retail” point. For all the retail investors that made a killing so far, there are going to be an equal if not greater number that lose catastrophic amounts of money when it inevitably plummets back to somewhere near its real value. Protecting the small investor is a fundamental part of the securities laws. It’s baked into both the ‘33 and ‘34 act in numerous places. Last year, amidst the lunacy of the market continuing to go up during the worst economic year since the Great Depression, there were various credits where retail got killed specifically because they had unprecedented access to the markets and didn’t know anything about investing. For gods sake, people bought up Hertz after it filed Chapter 11 because they didn’t understand that equity gets wiped in 99.9999% of cases. It’s also behavior like this (pure speculation) that causes huge crashes. It’s what caused the ‘29 crash and, in large part, the dotcom crash. Wallstreetbets routinely touts absolutely ludicrous investing strategies (its well known that they collectively use the market as a complete slot machine and lose money hand over fist way more often than they make it).

I’m not saying that there wasn’t some back door dealing or attempts to influence (I don’t know for a fact one way or another), but to assume that every retail brokerage is in on a conspiracy to help Wall Street and screw over their primary retail clients is fairly farfetched.

Either way, I think this is going to make a real impact. I’d expect the SEC to issue new regs in the next year or two addressing both short selling disclosure requirements and the somewhat newfound interest in the market by retail. We’ll see.

[Ajax]

Originally Posted by White Earl

This shit crazy. They were breaking the bank on gamestop and these fuckers were paying out so much basically overnight that they ended purchases and you can only sell now. Fucking awesome. Wish ida known before it was too late

Brokers don’t “pay out” when their clients make trades, in fact nearly all of them make money (it’s their primary source of revenue).

[Geno]

Originally Posted by JaysonFresh

well put, Answer
I was never a fan of Robinhood and this obviously exposes them.

alt/cryptocurrency dogecoin next to moon.

Hey. So we still moon climbin pi. And stoked for it to actually do whatbit does. Hopefully by the end of the year. I mean im trying to hit heavy with this shit

I peeped dogecoin. Probably drop about 200 on it

[JaysonFresh]

hope you got out