Why? For a brokerage it's an existential concern. And they can't publicly admit it's a problem either, because that would likely trigger the brokerage equivalent of a bank run. (Of course, odds are they're already grappling with that as well.)
They've lost the trust of people YOLOing on meme stonks. I'm sure it's a noisy part of their userbase, but still only a part.
It would be interesting to see stats on how many people use RH for long-term investments (buy and hold, DCA, etc), and how many use it as a form of gambling (day trading, leveraged options etc).
The people YOLOing on meme stocks is what makes their orderflow so valuable to Citadel. Why would they be willing to pay so much for it if not for that flow? (At least until the past few weeks, where maybe now it's considered toxic)
I'm not sure about this. If there's clear and blatant market manipulation on the part of the broker (which will likely get them hauled in before the SEC btw) then I imagine many investors/traders looking at this from the sidelines will be pulling their accounts as well, whether they're involved in this directly or not.
I think it will depend on furore that remains after the dust has settled. It seems to have become a bipartisan issue (when last did the US have one of those?) which means if people stay angry enough they will still be pulled before SEC. Civil class action lawsuits have already been filed against RH and the like.
If the SEC could they would probably pull the stock pumpers as well, but you can ask Hollywood how easy it is to pull a random crowd of Internet disruptors in front of any kind of court in practice. Very difficult to prove coordination in a case like this as well, although not impossible
This is all that day trading is. Regardless of whether the traders even know what a meme subreddit is. Why would any day trader want to use a platform that’s going to do stuff like cut you out of an epic short squeeze? If a non-professional investor had sensible ideas, they wouldn’t be day trading.
There's day trading, and then there's taking out credit card cash advances to buy leveraged call options on a stock that's already gone up 1000% in a month. Both are risky, but the day traders I've known wouldn't touch the latter with a barge pole.
Would the day traders you know be happy using a brokerage who’s liquidity issue mean it’s had to ban trading certain securities? Even if they don’t want to YOLO like a maniac, why would you trust a company that’s had so many very public blunders with your money? It’s not like there aren’t more reputable zero-fee brokerages out there.
At least special margin requirements have always existed, and usually day traders know to avoid them or how to deal with the special requirements with a broker that allows you a more sophisticated view of the market. e.g. for Interactive Brokers, you look at this list and know you're going to have a pain trading these stocks:
You couldn’t buy any of the stocks with settled cash. Why keep bringing up margin and leverage and credit cards? Several other brokers did halt buying after Alpha Clearinghouse said they couldn’t fulfill them — but that block from the clearinghouse lasted a few hours on a few securities. Robinhood blocked a lot more securities for the entirety of the day.
There’s this need to paint retail investors as incapable of understanding margin and leverage to bias the conversation and make them seem in need of being rescued from themselves — but robinhood hurt a lot more than just those over-leveraged people (not that they would be justified in hurting any of them).
I had small positions in the app for the last year after starting an etrade account — none of them in memes and none of them on margin, none of them blocked by RH’s actions - and I will be joining the people exiting and closing their accounts.
If you’re looking for a casual broker that doesn’t behave unethically and incentivizes safe and informed investing for newbies, take a look at Public[1].
Why does it matter whether the user is using it for long-term or YOLO-ing meme stonks.
Is American Airlines a meme stock? They were halted too? Think there were any admirable long term investors wanting to buy it today? I dont know, but what I do know is that they wouldnt have the choice if they were using Robinhood.
I think the main point people are upset about is that it just feels gross when the rug can and as we saw today WILL be pulled out from under you at the discretion of a few people within their brokerage.
I tend to think that it's become too common to dabble in shares. And I know this is me being a bit snotty. But there's real risk there and when I started out, I didn't use an app. I went to an office with broker and did the orders. There's a certain risk with an app, and an echo chamber. A lot of people can make silly mistakes. And that's part of the market too, but that customer killing themselves over a bad trade is a tradgedy.
