Author Topic: Someone fill me in on what's going on with WSB subreddit and GME / BB stocks  (Read 27215 times)

stoaX

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I'm reading that the hedge fund shorted more stock than actually existed. How does this happen?

Easy.

Suppose there's a company with 200 shares outstanding. Alice owns 100, Bob owns the other 100. Hedge Fund thinks the company is surely going bankrupt, borrows Alice's shares and sells them to Carlos for his bid price. Carlos has no way of knowing that Hedge Fund is short selling.

It's worth pointing out that even after the first short transaction, Alice, Bob, and Carlos collectively own 300 shares, even though only 200 exist!

Now another group, let's call them Topiary Fund, also thinks that the shares are way overvalued. They borrow Bob's shares and sell them to Danielle. Now 100% of the shares are shorted. Alice and Bob can't lend their shares out anymore because they already did that, but what about Carlos and Danielle? As far as they're concerned they bought shares on the open market, and they can do with them what they please.

Thicket Fund comes along, also convinced that the company is overvalued, and Carlos lends them his shares. They sell these borrowed shares to Elaine, who once again doesn't know how many times these shares have traded hands.

Now Alice, Bob, and Carlos each own 100 shares that they've lent out, while Danielle and Elaine also own 100 shares that they're actually holding at the moment. The long positions total 250% of the outstanding shares, while the 150% short position balances out the math. Hedge, Topiary, and Thicket Funds are each waiting for the price to go down so they can buy the shares back and return them to their owners, pocketing the difference.

What if the shares don't go down in value? Now these short sellers have a problem. Suppose Greg comes along and offers a higher price. Alice decides that price looks pretty good and accepts Greg's offer. The only problem is Hedge Fund borrowed her shares. No matter. She'll just call in the loan and sell the shares.

Now Hedge Fund is in a bind. Greg just offered more than the shares were worth when Hedge Fund shorted them, and nobody else is selling for a lower price either. Hedge Fund has to buy 100 shares, and buy them fast. Turns out Carlos is willing to sell his shares, but he's asking more than Greg offered. Nevertheless that's the lowest offer on the table right now, so Hedge Fund has to suck it up and pay Carlos's price.

One problem...Carlos lent his shares to Thicket Fund. Now they have a problem...

And it spirals from there.

The natural thing might be for one of Bob, Elaine, or Danielle to notice the price is escalating pretty quickly and sell to Thicket Fund for a tidy profit. If Bob sells then the problem extends to Topiary Fund, but surely Elaine or Danielle won't ask for all that much more than Bob did, right? The hedge funds would lose a bit of money on the trade, but that's part of the game. It happens sometimes. No big deal. The r/wallstreetbets folks are trying to do something pretty unnatural: have a bunch of people who don't really know each other all go along with not selling at any price, even though selling would be a perfectly rational thing for any of them to do. It's pretty fascinating to watch.

Thanks - that's a very helpful explanation.

bacchi

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I read this morning that in all likelihood robin hood didn't have the cash to clear the stocks at the clearing house, so their choices were: 1) Not delivering stock or 2) restricting trading.

I'm curious as to how that works. If people are buying with cash and not on margin, how is there not enough cash available? Is it a logistical issue of the cash not being in the right accounts quick enough to support the rapid buying?

I’m probably wrong about something here so grain of salt.

When you submit an order to buy stock with your cash, your broker goes out and buys the stock with their cash. Not having to move cash around is how trades execute so fast. The broker creates a margin liability on your account to reflect the cash you owe them. So at that point you might for example have $100 cash and a $-100 margin balance. This is reconciled later, such as the next day, when cash is debited and margin is credited. The user interface may not show these separate accounts but they exist.

Usually, the broker can just use their working capital to float these overnight loans, because for everyone buying a stock and tying up capital, there is someone else selling stock and contributing to the pool, which works the other way too. However... Suppose all the institutional holders of a stock are selling at the same time all the people with Robinhood accounts are trying to buy. Or suppose all the people with Robinhood accounts are ONLY buying and not selling. These scenarios would deplete Robinhood’s working capital to the point they could no longer execute buys for their clients.

Robinhood used ALL of its credit lines and then went out and raised more capital. They were hammered.

https://finance.yahoo.com/news/robinhood-raises-1b-trading-halts-143500907.html

It wasn't some evil cabal; it was an underfunded brokerage. This also explains why Fido and Vanguard allowed buying -- they had the capital (and had fewer trades) to sustain the madness.

The class action lawsuit against Robinhood will go nowhere.

zinnie

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Well, this is entertaining. I've now spent way to much time reading the WSB Reddit. This whole scenario could not possibly be less MMM philosophy, but I'm really enjoying this stick-it-to-the-man part (in a way it's similar to what Bogleheads/ indexing talks about in terms of making investing fair for the little guy.)

But yeah, a lot of average people are going to lose a LOT of money when this thing crashes. And I do hope brokerages get what the deserve for manipulating pricing!

Valley of Plenty

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If nothing else, it seems certain that once this fiasco is over the average person will have much more of an interest in the stock market. Virtually all of my friends and coworkers are talking about this; the ones who previously knew nothing about investing now seem quite eager to figure out how it all works.

This could signal a shift in the investing landscape, with the average American being more actively involved in the market than in years past. I wonder how that will change the game?

bacchi

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If nothing else, it seems certain that once this fiasco is over the average person will have much more of an interest in the stock market. Virtually all of my friends and coworkers are talking about this; the ones who previously knew nothing about investing now seem quite eager to figure out how it all works.

This could signal a shift in the investing landscape, with the average American being more actively involved in the market than in years past. I wonder how that will change the game?

More of these "to the moon" trades will happen on social media, but without a large hedge fund backing it, and a lot of people will lose money to the ones who get out first.

Dancin'Dog

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Have any of you considered, or read, that this situation might involve Russian influence? 




DW shared an article with me this morning by David Troy discussing it.







FIPurpose

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Robinhood may have a sound excuse to avoid the heaviest legal penalties, but the Chairman of IBKR has basically admitted on camera to purposefully manipulating what people can or can't buy:

https://www.youtube.com/watch?v=7RH4XKP55fM&feature=emb_logo

zinnie

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If nothing else, it seems certain that once this fiasco is over the average person will have much more of an interest in the stock market. Virtually all of my friends and coworkers are talking about this; the ones who previously knew nothing about investing now seem quite eager to figure out how it all works.

This could signal a shift in the investing landscape, with the average American being more actively involved in the market than in years past. I wonder how that will change the game?

It's a good point! I do wonder about that. It could also spurn mass collaboration around investing around what companies we WANT to do well, as a society, instead of just which ones we think will be successful. You know, like solar energy and biomedical innovations, instead of video games :) Socially responsible investing, but en masse.

CodingHare

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If nothing else, it seems certain that once this fiasco is over the average person will have much more of an interest in the stock market. Virtually all of my friends and coworkers are talking about this; the ones who previously knew nothing about investing now seem quite eager to figure out how it all works.

This could signal a shift in the investing landscape, with the average American being more actively involved in the market than in years past. I wonder how that will change the game?

Total cynical speculation: I don't think much will change?  Much is being made of the little guy punching out a big hedge fund (with good reason!)  But on average this is the 1 big win for retail investors, where usually their stock picks are unsuccessful.  This is the rare golden goose that had a good case, got noticed by enough people, and had a special way to guarantee returns (the 140% short mistake the hedge funds did.)  WSB isn't going to repeat this feat next month.

Meanwhile, hedge funds are demonstrating just how much political power they have compared to the rest of us.  We lose money, no one comes racing in with a $2billion loan.  We share publicly available data, the media is handed press releases calling us market manipulators.  We get our ability to buy arbitrarily frozen by brokerages owned by short sellers and their cronies, while they get no restriction.  We can only buy during certain hours, while hedge funds trade in a frenzy after hours to get out of their crap short positions.

If anything, I expect cynicism to increase.  Retail was told if we just played the game really good, like the big guys, we could become millionaires overnight (if we got lucky).   Now we're seeing that the game is owned by the house, the Fed won't even the playing field, and all of that is a lie.  What reason do retail investors have to play the game if what Melvin, Citadel, and Robinhood did is all perfectly legal?  I'm seeing crypto surge right now, and I think a lot of it is people losing faith in the financial system.  But we shall see where the chips fall today.

CodingHare

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Have any of you considered, or read, that this situation might involve Russian influence? 




DW shared an article with me this morning by David Troy discussing it.

Yeah, apparently it is too unbelievable that an average American with too much time on their hands could ever possibly see a legitimate opportunity in the stock market.  It MuST bE RuSsIA!1!

Other things I've heard: Everyone on Wallstreetbets is an "alt-right troll", Everyone on WSB is anti-capitalist communists, everyone on WSB is the OccupyWallstreet movement coming back...

Sure seems like the media is trying to figure out which villainous group they can pin this on.

YYK

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If nothing else, it seems certain that once this fiasco is over the average person will have much more of an interest in the stock market. Virtually all of my friends and coworkers are talking about this; the ones who previously knew nothing about investing now seem quite eager to figure out how it all works.

This could signal a shift in the investing landscape, with the average American being more actively involved in the market than in years past. I wonder how that will change the game?

I interpret it more cynically as bubble behavior: lots of neophytes get involved because they're hearing about massive gains, then the market crashes, they lose money, and write off stocks forever like people in the 30s.

zolotiyeruki

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If Robinhood had been forthright about being unable to cover the purchases, I'd be willing to give them the benefit of the doubt.  It's clear, however, that they've been lying through their teeth, and their incestuous relationship with Citadel sure isn't making them look any better.

zinnie

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@GreenEggs and @CodingHare I don't think the concept that open internet forums are often infiltrated by bad actors is a stretch by any means. And it is certainly not intuitive to a lot of the people on them that posters may not be who they seem. At the same time, what used to be specifically "Russian influence" is now homegrown when things straight from the FSB playbook are being used by U.S. citizens against eachother. If revving people up like this was intended to be some kind of attack--what is the goal? Just to tank the markets? Have people lose faith in the system?

bacchi

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Robinhood may have a sound excuse to avoid the heaviest legal penalties, but the Chairman of IBKR has basically admitted on camera to purposefully manipulating what people can or can't buy:

https://www.youtube.com/watch?v=7RH4XKP55fM&feature=emb_logo

Peterffy has always been an ass.

There will be no legal penalties. The brokerage agreement allows trading restrictions.


(Incidentally, this is an example of IBKR increasing margin on very short notice.)

Psychstache

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If nothing else, it seems certain that once this fiasco is over the average person will have much more of an interest in the stock market. Virtually all of my friends and coworkers are talking about this; the ones who previously knew nothing about investing now seem quite eager to figure out how it all works.

This could signal a shift in the investing landscape, with the average American being more actively involved in the market than in years past. I wonder how that will change the game?

Total cynical speculation: I don't think much will change?  Much is being made of the little guy punching out a big hedge fund (with good reason!)  But on average this is the 1 big win for retail investors, where usually their stock picks are unsuccessful.  This is the rare golden goose that had a good case, got noticed by enough people, and had a special way to guarantee returns (the 140% short mistake the hedge funds did.)  WSB isn't going to repeat this feat next month.

Meanwhile, hedge funds are demonstrating just how much political power they have compared to the rest of us.  We lose money, no one comes racing in with a $2billion loan.  We share publicly available data, the media is handed press releases calling us market manipulators.  We get our ability to buy arbitrarily frozen by brokerages owned by short sellers and their cronies, while they get no restriction.  We can only buy during certain hours, while hedge funds trade in a frenzy after hours to get out of their crap short positions.

If anything, I expect cynicism to increase.  Retail was told if we just played the game really good, like the big guys, we could become millionaires overnight (if we got lucky).   Now we're seeing that the game is owned by the house, the Fed won't even the playing field, and all of that is a lie.  What reason do retail investors have to play the game if what Melvin, Citadel, and Robinhood did is all perfectly legal?  I'm seeing crypto surge right now, and I think a lot of it is people losing faith in the financial system.  But we shall see where the chips fall today.

I generally agree, but think the bolded will be more nuanced. In my experience, it seems like every generation has a group of people who are young and dumb and want to shoot for the moon. When their experiments fail, two kinds of people emerge: Those who are bitter about the experience and move to the vein of counter-culture/anarchy/the system is rigged, and those who give up and join the system/get a job/accept their slice in exchange for filling a role. The first group will lose faith in the system, the second will accept the trade off and play along.

CodingHare

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@GreenEggs and @CodingHare I don't think the concept that open internet forums are often infiltrated by bad actors is a stretch by any means. And it is certainly not intuitive to a lot of the people on them that posters may not be who they seem. At the same time, what used to be specifically "Russian influence" is now homegrown when things straight from the FSB playbook are being used by U.S. citizens against eachother. If revving people up like this was intended to be some kind of attack--what is the goal? Just to tank the markets? Have people lose faith in the system?

I agree that manipulation of social media definitely occurs--just look at all the times Twitter has had to delete Russian owned accounts.  I'm just saying jumping to a foreign power as the best explanation for the events of this week defies Occam's Razor.  The original post about GME happened last year.  WSB has been around for years.  Not everything bad that happens is an evil plan from Putin to weaken America.

The American stock market is weak enough on its own.  Look how detached it is from our economy.  Record highs amidst record unemployment due to the pandemic.

As for the goals you mentioned: Americans are definitely losing even more faith in the financial system.  We've known since 2008 that Wall Street gets a slap on the wrist while the taxpayer gets the bill when they act illegally.  Now we're seeing it play out again, only this time retail is getting directly screwed with no recourse.

The market will be fine.  One stock getting gambled on shouldn't really have knock on effects beyond one or two hedge funds folding.


... I'm seeing crypto surge right now, and I think a lot of it is people losing faith in the financial system.  But we shall see where the chips fall today.

I generally agree, but think the bolded will be more nuanced. In my experience, it seems like every generation has a group of people who are young and dumb and want to shoot for the moon. When their experiments fail, two kinds of people emerge: Those who are bitter about the experience and move to the vein of counter-culture/anarchy/the system is rigged, and those who give up and join the system/get a job/accept their slice in exchange for filling a role. The first group will lose faith in the system, the second will accept the trade off and play along.

I agree, to be clear I still don't expect crypto to unseat the global financial system.  But I do expect group one to be ripe pickings for progressive populist politicians promising to bring the investor class down.

trollwithamustache

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The Russian influence thing is becoming a bit of an American Bogeyman isn't it? Its the great distractor that always works.

Any of these heavily short sold companies, any of them, are ripe for short squeezes. it happens all the time, sometimes big like GME sometimes on a smaller scale. There are multiple websites like shortsqueeze.com dedicated to tracking data for this stuff. Not that I recommend it as a trading strategy, but its one a lot of people were doing prior to this.

The blatant retail manipulation is what is unique about this.  Note Peterffy/IB will "get away with it" because (as near as I can tell) they only limited options/margin trading on a stock with >>1000% volatility.  Robinhood restricting or possibly liquidating fully cash covered non margin positions is very different.

salt cured

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I was going to buy some shares just to get in on the fun but didn't have any settled funds and don't want to be locked into it in case it crashes tomorrow.

I also wanted to participate (figured the WSB crowd might trigger a rebound this morning if Robinhood opened up buying again), but I didn't have enough settled cash for even a single share of GME. So I picked up 6 shares of AMC instead. Sold for a $36 profit. That's more than enough excitement for one day and incidentally just enough for my favorite pizza here in town, once I pay that capital gains tax.

HBFIRE

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Suppose there's a company with 200 shares outstanding. Alice owns 100, Bob owns the other 100. Hedge Fund thinks the company is surely going bankrupt, borrows Alice's shares and sells them to Carlos for his bid price. Carlos has no way of knowing that Hedge Fund is short selling.

It's worth pointing out that even after the first short transaction, Alice, Bob, and Carlos collectively own 300 shares, even though only 200 exist!


Hmm, as I understand it there would still be 200 shares in this example, as 100 of them were borrowed and sold -- Alice doesn't technically own 100 shares until they are returned.  This didn't create 100 new shares.  The stocks that were borrowed will have to be purchased again by the shorter.

A naked call is when a call option is sold by itself (uncovered) without any offsetting positions (which isnt the case in the example above).  This would be when there are more shares than actually exist.  In short, (no pun intended), you can short a stock without creating more shares than exist.  Bob did a regular short here, not a naked call.
« Last Edit: January 29, 2021, 10:54:05 AM by HBFIRE »

seattlecyclone

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Suppose there's a company with 200 shares outstanding. Alice owns 100, Bob owns the other 100. Hedge Fund thinks the company is surely going bankrupt, borrows Alice's shares and sells them to Carlos for his bid price. Carlos has no way of knowing that Hedge Fund is short selling.

It's worth pointing out that even after the first short transaction, Alice, Bob, and Carlos collectively own 300 shares, even though only 200 exist!


Hmm, as I understand it there would still be 200 shares in this example, as 100 of them were borrowed and sold -- this didn't create 100 new shares.  The stocks that were borrowed will have to be purchased again by the shorter.

Agreed, no new shares are created. There are still only 200 shares on the company's books, and only the people actually holding the shares at the moment get to vote for directors and such. However there are nevertheless three people who own long positions in 100 shares apiece. This is balanced out by the 100 shares held in a short position.

HBFIRE

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However there are nevertheless three people who own long positions in 100 shares apiece.

Just two.  Alice doesn't own 100 shares until they are returned.

seattlecyclone

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However there are nevertheless three people who own long positions in 100 shares apiece.

Just two.  Alice doesn't own 100 shares until they are returned.

Sure she does. That's what lending means: you give something to another person for a period of time without relinquishing ownership rights. She doesn't currently possess the 100 shares, but she does still own them.

HBFIRE

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Sure she does. That's what lending means: you give something to another person for a period of time without relinquishing ownership rights. She doesn't currently possess the 100 shares, but she does still own them.


Yes she lent them, hence doesn't technically have them until they are returned -- its still a total of 200 shares in this case.  The shorter has to buy back to make good.   But this isn't what happened with Melvin Capital.  They made a naked call, which is selling more than actually exist.  Totally different.
« Last Edit: January 29, 2021, 11:17:31 AM by HBFIRE »

Lews Therin

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Sure she does. That's what lending means: you give something to another person for a period of time without relinquishing ownership rights. She doesn't currently possess the 100 shares, but she does still own them.


Yes she lent them, hence doesn't technically have them until they are returned -- its still a total of 200 shares in this case.   But this isn't what happened with Melvin Capital.  They made a naked call, which is selling more than actually exist.  Totally different.

Alice didn't lend them. Alice's mom, who buys the stocks for her, lent them, and is on the hook as well if they don't come back.

seattlecyclone

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Sure she does. That's what lending means: you give something to another person for a period of time without relinquishing ownership rights. She doesn't currently possess the 100 shares, but she does still own them.


Yes she lent them, hence doesn't technically have them until they are returned -- its still a total of 200 shares in this case.   But this isn't what happened with Melvin Capital.  They made a naked call, which is selling more than actually exist.  Totally different.

Alice didn't lend them. Alice's mom, who buys the stocks for her, lent them, and is on the hook as well if they don't come back.

True enough. I didn't want to overcomplicate the example by mentioning that Alice's broker is the one actually doing the lending, and they're also obligated to return the shares to Alice, but the distinction does matter if the hedge fund goes bankrupt or something.

trollwithamustache

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 that Alice's broker is the one actually doing the lending, and they're also obligated to return the shares to Alice, but the distinction does matter if the hedge fund goes bankrupt or something.

This is an interesting point. RH has almost certainly lent out all the shares too short sellers.  they make their money by selling order flow to the high frequency trading firms, so they  also lend out the shares, thats how they make money on zero commissions. So when you sell, the broker has to take back shares... which if the forced selling by RH rumor is true, that doesn't seem to help the hedge funds as much?

Lews Therin

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Sure she does. That's what lending means: you give something to another person for a period of time without relinquishing ownership rights. She doesn't currently possess the 100 shares, but she does still own them.


Yes she lent them, hence doesn't technically have them until they are returned -- its still a total of 200 shares in this case.   But this isn't what happened with Melvin Capital.  They made a naked call, which is selling more than actually exist.  Totally different.

Alice didn't lend them. Alice's mom, who buys the stocks for her, lent them, and is on the hook as well if they don't come back.

True enough. I didn't want to overcomplicate the example by mentioning that Alice's broker is the one actually doing the lending, and they're also obligated to return the shares to Alice, but the distinction does matter if the hedge fund goes bankrupt or something.

An even more interesting point is that Alice's mom buys the shares from her Grandmother, who might also be on the hook for it.

Alice (stock holder)
Mom (Brokerage)
Grandmom (clearing house)

That's a lot of dominoes.

***If that is correct. I'm not all that knowledgeable, but that seemed to be what the CEO of IB was saying.

bacchi

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Is there any reason that closely-held shares can't be loaned? They're often held in "street name" too.

marty998

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I read this morning that in all likelihood robin hood didn't have the cash to clear the stocks at the clearing house, so their choices were: 1) Not delivering stock or 2) restricting trading.

I'm curious as to how that works. If people are buying with cash and not on margin, how is there not enough cash available? Is it a logistical issue of the cash not being in the right accounts quick enough to support the rapid buying?

I’m probably wrong about something here so grain of salt.

When you submit an order to buy stock with your cash, your broker goes out and buys the stock with their cash. Not having to move cash around is how trades execute so fast. The broker creates a margin liability on your account to reflect the cash you owe them. So at that point you might for example have $100 cash and a $-100 margin balance. This is reconciled later, such as the next day, when cash is debited and margin is credited. The user interface may not show these separate accounts but they exist.

Usually, the broker can just use their working capital to float these overnight loans, because for everyone buying a stock and tying up capital, there is someone else selling stock and contributing to the pool, which works the other way too. However... Suppose all the institutional holders of a stock are selling at the same time all the people with Robinhood accounts are trying to buy. Or suppose all the people with Robinhood accounts are ONLY buying and not selling. These scenarios would deplete Robinhood’s working capital to the point they could no longer execute buys for their clients.

Yes this is it. Brokers net settle everything at the end of each day with every other broker. It’s why the markets close at 4pm (ignoring after hours trading)... it gives the brokers time to figure out how much they all owe each other.

RH restricted trading because they didn’t have enough capital to cover the potential trading going on.

RH traders selling gives them a buffer (other brokers would owe them, so less capital required). The public relations fuckup was that they permitted selling and gave bullshit reasons instead of just shutting down trading completely until they drew down further on their own lines of credit/funding.

Edit to add....a note about trade execution risk. The broker you choose to go with obviously does matter. You want them to have deep pockets and, ultimately, you get what you pay for.
« Last Edit: January 29, 2021, 01:02:02 PM by marty998 »

pressure9pa

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Any way to accurately track the total short position in real time?  Curious about how many took their losses today versus how many are rolled over with new positions.

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RobinHood.... stopping the masses from trading to help the Sheriffs at Melvin at Citadel.

more like Robbing(da)Hood.

trollwithamustache

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I read this morning that in all likelihood robin hood didn't have the cash to clear the stocks at the clearing house, so their choices were: 1) Not delivering stock or 2) restricting trading.

I'm curious as to how that works. If people are buying with cash and not on margin, how is there not enough cash available? Is it a logistical issue of the cash not being in the right accounts quick enough to support the rapid buying?

I’m probably wrong about something here so grain of salt.

When you submit an order to buy stock with your cash, your broker goes out and buys the stock with their cash. Not having to move cash around is how trades execute so fast. The broker creates a margin liability on your account to reflect the cash you owe them. So at that point you might for example have $100 cash and a $-100 margin balance. This is reconciled later, such as the next day, when cash is debited and margin is credited. The user interface may not show these separate accounts but they exist.

Usually, the broker can just use their working capital to float these overnight loans, because for everyone buying a stock and tying up capital, there is someone else selling stock and contributing to the pool, which works the other way too. However... Suppose all the institutional holders of a stock are selling at the same time all the people with Robinhood accounts are trying to buy. Or suppose all the people with Robinhood accounts are ONLY buying and not selling. These scenarios would deplete Robinhood’s working capital to the point they could no longer execute buys for their clients.

Yes this is it. Brokers net settle everything at the end of each day with every other broker. It’s why the markets close at 4pm (ignoring after hours trading)... it gives the brokers time to figure out how much they all owe each other.

RH restricted trading because they didn’t have enough capital to cover the potential trading going on.

RH traders selling gives them a buffer (other brokers would owe them, so less capital required). The public relations fuckup was that they permitted selling and gave bullshit reasons instead of just shutting down trading completely until they drew down further on their own lines of credit/funding.

Edit to add....a note about trade execution risk. The broker you choose to go with obviously does matter. You want them to have deep pockets and, ultimately, you get what you pay for.


no way RH ran out of funds. At the clearing house level, these guys are allowed a huge amount of margin above the daily limits retail folks are limited to.  The market remains orderly, ie trades are being cleared and covered, so for un-margined positions and even low levels of margin, there is plenty of capital sloshing around. Drawing on the credit lines and then restricting margin is not exactly unheard of for volatile trading. It certainly happened last year around Oil futures and oil ETFs. The margin restrictions are entirely proper and need to be kept separate. A deep pocketed broker can extend more margin for longer, not that this is necessarily a good thing.

Without margin, this idea that RH ran out of money to cover trades just isn't true. RH would stop you from buying any security you don't have sufficient funds for in your account. Unless their system is totally F'ed. and that is a very different problem! Or unless you're funds on deposit with them are not there anymore. which would also be F'd, but I think not true.

bacchi

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Any way to accurately track the total short position in real time?  Curious about how many took their losses today versus how many are rolled over with new positions.

Unless someone is willing to share their real time data, this guy may be the closest: https://twitter.com/ihors3

GuitarStv

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This whole scenario makes me giggle.

pressure9pa

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Any way to accurately track the total short position in real time?  Curious about how many took their losses today versus how many are rolled over with new positions.

Unless someone is willing to share their real time data, this guy may be the closest: https://twitter.com/ihors3

Thanks.

thd7t

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This whole scenario makes me giggle.
I like that we can go four pages into it without mentioning greed.  It's "good" to be taking some of these hedge funds down a peg, but people are not doing it out of goodness.  They're just feeling good.  Lot of greed and gambling addiction going on.  Gonna be a lot of broke retail "investors" at the end.

Steeze

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If nothing else, it seems certain that once this fiasco is over the average person will have much more of an interest in the stock market. Virtually all of my friends and coworkers are talking about this; the ones who previously knew nothing about investing now seem quite eager to figure out how it all works.

This could signal a shift in the investing landscape, with the average American being more actively involved in the market than in years past. I wonder how that will change the game?

I came to the exact opposite conclusion:

Your average retiree stock owner (read: boomer) now is well aware of rampant market manipulation / speculation and is terrified to lose their retirement more than they were two weeks ago. They will sell their positions and move permanently to safer investments like cash/gold/bonds/annuities causing downward pressure on the broad market. People like my parents who have no retirement savings see the news and feel vindicated for not investing all these years, further reinforcing their willingness not to participate. People my age will try to jump on the rocket ship and will ultimately get burned - they may exit the stock market after deeming it too risky / might as well spend it. The millennial & gen-z crowd will enjoy their moment in the spotlight as the winners & heroes until the quants figure out how to beat them at their own game and they are eliminated.

With so much media coverage providing negative sentiment the herd will follow and take the market with it. The hedge funds will win, everyone else will lose.

Maybe I am just a cynic.

Lews Therin

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If nothing else, it seems certain that once this fiasco is over the average person will have much more of an interest in the stock market. Virtually all of my friends and coworkers are talking about this; the ones who previously knew nothing about investing now seem quite eager to figure out how it all works.

This could signal a shift in the investing landscape, with the average American being more actively involved in the market than in years past. I wonder how that will change the game?

I came to the exact opposite conclusion:

Your average retiree stock owner (read: boomer) now is well aware of rampant market manipulation / speculation and is terrified to lose their retirement more than they were two weeks ago. They will sell their positions and move permanently to safer investments like cash/gold/bonds/annuities causing downward pressure on the broad market. People like my parents who have no retirement savings see the news and feel vindicated for not investing all these years, further reinforcing their willingness not to participate. People my age will try to jump on the rocket ship and will ultimately get burned - they may exit the stock market after deeming it too risky / might as well spend it. The millennial & gen-z crowd will enjoy their moment in the spotlight as the winners & heroes until the quants figure out how to beat them at their own game and they are eliminated.

With so much media coverage providing negative sentiment the herd will follow and take the market with it. The hedge funds will win, everyone else will lose.

Maybe I am just a cynic.

Numbers aren`t real, just a random number choice to explain what I think is happening

I think it`s because 4B went into Gamestop, which usually would have gone into other things,  (So etfs would go down 4B) ; At the same time, the Shorters keep getting hit, and need to pull out more money from other investments (lowering etfs). And then you have run on brokerages that are blocking trades that people see are unfair, so a shitstorm of suspicious activity.

That said... ETFS ARE ON SALE!! BUY BUY BUY

jehovasfitness23

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I read this morning that in all likelihood robin hood didn't have the cash to clear the stocks at the clearing house, so their choices were: 1) Not delivering stock or 2) restricting trading.

I'm curious as to how that works. If people are buying with cash and not on margin, how is there not enough cash available? Is it a logistical issue of the cash not being in the right accounts quick enough to support the rapid buying?

I’m probably wrong about something here so grain of salt.

When you submit an order to buy stock with your cash, your broker goes out and buys the stock with their cash. Not having to move cash around is how trades execute so fast. The broker creates a margin liability on your account to reflect the cash you owe them. So at that point you might for example have $100 cash and a $-100 margin balance. This is reconciled later, such as the next day, when cash is debited and margin is credited. The user interface may not show these separate accounts but they exist.

Usually, the broker can just use their working capital to float these overnight loans, because for everyone buying a stock and tying up capital, there is someone else selling stock and contributing to the pool, which works the other way too. However... Suppose all the institutional holders of a stock are selling at the same time all the people with Robinhood accounts are trying to buy. Or suppose all the people with Robinhood accounts are ONLY buying and not selling. These scenarios would deplete Robinhood’s working capital to the point they could no longer execute buys for their clients.

Yes this is it. Brokers net settle everything at the end of each day with every other broker. It’s why the markets close at 4pm (ignoring after hours trading)... it gives the brokers time to figure out how much they all owe each other.

RH restricted trading because they didn’t have enough capital to cover the potential trading going on.

RH traders selling gives them a buffer (other brokers would owe them, so less capital required). The public relations fuckup was that they permitted selling and gave bullshit reasons instead of just shutting down trading completely until they drew down further on their own lines of credit/funding.

Edit to add....a note about trade execution risk. The broker you choose to go with obviously does matter. You want them to have deep pockets and, ultimately, you get what you pay for.


no way RH ran out of funds.

earlier yesterday the CEO said it wasn't a liquidity issue LOL so many lies

gentmach

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Hedge Funds and the Journalists that love them.

You guys might enjoy this read.

https://mega.nz/file/Ip4RQIpC#R84u3tslYclSLhdIg8s4L1XyKja16ch1G9ipb97aSlw

Travis

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If nothing else, it seems certain that once this fiasco is over the average person will have much more of an interest in the stock market. Virtually all of my friends and coworkers are talking about this; the ones who previously knew nothing about investing now seem quite eager to figure out how it all works.

This could signal a shift in the investing landscape, with the average American being more actively involved in the market than in years past. I wonder how that will change the game?

I came to the exact opposite conclusion:

Your average retiree stock owner (read: boomer) now is well aware of rampant market manipulation / speculation and is terrified to lose their retirement more than they were two weeks ago. They will sell their positions and move permanently to safer investments like cash/gold/bonds/annuities causing downward pressure on the broad market. People like my parents who have no retirement savings see the news and feel vindicated for not investing all these years, further reinforcing their willingness not to participate. People my age will try to jump on the rocket ship and will ultimately get burned - they may exit the stock market after deeming it too risky / might as well spend it. The millennial & gen-z crowd will enjoy their moment in the spotlight as the winners & heroes until the quants figure out how to beat them at their own game and they are eliminated.

With so much media coverage providing negative sentiment the herd will follow and take the market with it. The hedge funds will win, everyone else will lose.

Maybe I am just a cynic.

2008 was a lifetime ago to a millennial. It was yesterday to a boomer/Gen X thinking about retirement.

Duke03

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If nothing else, it seems certain that once this fiasco is over the average person will have much more of an interest in the stock market. Virtually all of my friends and coworkers are talking about this; the ones who previously knew nothing about investing now seem quite eager to figure out how it all works.

This could signal a shift in the investing landscape, with the average American being more actively involved in the market than in years past. I wonder how that will change the game?

I came to the exact opposite conclusion:

Your average retiree stock owner (read: boomer) now is well aware of rampant market manipulation / speculation and is terrified to lose their retirement more than they were two weeks ago. They will sell their positions and move permanently to safer investments like cash/gold/bonds/annuities causing downward pressure on the broad market. People like my parents who have no retirement savings see the news and feel vindicated for not investing all these years, further reinforcing their willingness not to participate. People my age will try to jump on the rocket ship and will ultimately get burned - they may exit the stock market after deeming it too risky / might as well spend it. The millennial & gen-z crowd will enjoy their moment in the spotlight as the winners & heroes until the quants figure out how to beat them at their own game and they are eliminated.

With so much media coverage providing negative sentiment the herd will follow and take the market with it. The hedge funds will win, everyone else will lose.

Maybe I am just a cynic.

2008 was a lifetime ago to a millennial. It was yesterday to a boomer/Gen X thinking about retirement.


I think you are wrong on this.  A lot of millennials remember the struggles their parents went through and the hardships the family endured when everyone lost their jobs in 2008.  I know this because they talk about it non stop.  They are out for blood.  These Hedge funds screwed their families 13 years ago and they haven't forgot.  Wallstreetbets has grown in members from 2 million to 6 million in a matter of days with fresh capital and reinforcements joining the cause everyday things are about to get ugly.  Why do you think Robinhood had to raise 1 billion in cash last night?  They have been shorting all the stock their own customers have been buying....  What's funny is the media is now starting to scare the general public into thinking these crazy kids are causing the entire stock market to go down because they are buying GME.  No the entire stock market is going down because all the hedge funds got into a big circle jerk with their hedge fund buddies and decided to short GME 130%.  Now the hedge funds either have to raise cash or liquidate their blue chip positions to cover their short positions...

dragoncar

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IBKR did prevent buys with settled cash money.

I can’t fault them even a little bit for protecting themselves against margin risk and such.  That’s part of the game. 

But if they are holding my cash at a very attractive interest rate, which benefits their bottom line, and then prevent me from buying any legal security (this is not a case where regulators stepped in) then I have a philosophical issue with that

If it’s the same issue as RH having liquidity issues, well yeah it’s not exactly nefarious, but it’s not confidence inspiring either.  If a brokerage has liquidity problems from a single small ticker blowing up I’m not sure I trust them with my account


Patting myself on the back a little for me “brokerage diversity” ie too lazy to consolidate my many accounts

Remember these guys will pay you $1000 in IBKR stock to invest $100k with them.  They do seem to want assets registered with them but the CEO isn’t acting like it
« Last Edit: January 29, 2021, 05:38:11 PM by dragoncar »

pressure9pa

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So the overall short position has decreased some, but not a tremendous amount given the circumstances.  So it seems that either,

A.  The original shorts still haven't covered, and the day of reckoning still hasn't come for the institutional investors.  If this is the case, the available shares are scarce and the stock still has a lot of room to run.

B.  The original shorts got out and are licking their wounds, but a new group of shorts came in at elevated prices assuming it wouldn't be long until GSE returns to a value based on fundamentals.  In this case the retail investors probably lose their game of chicken, and the price slides back to "normal".


Travis

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If nothing else, it seems certain that once this fiasco is over the average person will have much more of an interest in the stock market. Virtually all of my friends and coworkers are talking about this; the ones who previously knew nothing about investing now seem quite eager to figure out how it all works.

This could signal a shift in the investing landscape, with the average American being more actively involved in the market than in years past. I wonder how that will change the game?

I came to the exact opposite conclusion:

Your average retiree stock owner (read: boomer) now is well aware of rampant market manipulation / speculation and is terrified to lose their retirement more than they were two weeks ago. They will sell their positions and move permanently to safer investments like cash/gold/bonds/annuities causing downward pressure on the broad market. People like my parents who have no retirement savings see the news and feel vindicated for not investing all these years, further reinforcing their willingness not to participate. People my age will try to jump on the rocket ship and will ultimately get burned - they may exit the stock market after deeming it too risky / might as well spend it. The millennial & gen-z crowd will enjoy their moment in the spotlight as the winners & heroes until the quants figure out how to beat them at their own game and they are eliminated.

With so much media coverage providing negative sentiment the herd will follow and take the market with it. The hedge funds will win, everyone else will lose.

Maybe I am just a cynic.

2008 was a lifetime ago to a millennial. It was yesterday to a boomer/Gen X thinking about retirement.


I think you are wrong on this.  A lot of millennials remember the struggles their parents went through and the hardships the family endured when everyone lost their jobs in 2008. 

I was thinking more about the 20 year olds who were toddlers when all of that happened who now have some money in their pockets and are big reddit users.  They certainly have the same indignation of the rest of their generation, but 'is the market evil or useful' question is not really shaped by their personal experiences in the market. Older folk are going to feel validated by their previous experiences, but this is all new to the younger crowd.

seattlecyclone

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If nothing else, it seems certain that once this fiasco is over the average person will have much more of an interest in the stock market. Virtually all of my friends and coworkers are talking about this; the ones who previously knew nothing about investing now seem quite eager to figure out how it all works.

This could signal a shift in the investing landscape, with the average American being more actively involved in the market than in years past. I wonder how that will change the game?

I came to the exact opposite conclusion:

Your average retiree stock owner (read: boomer) now is well aware of rampant market manipulation / speculation and is terrified to lose their retirement more than they were two weeks ago. They will sell their positions and move permanently to safer investments like cash/gold/bonds/annuities causing downward pressure on the broad market. People like my parents who have no retirement savings see the news and feel vindicated for not investing all these years, further reinforcing their willingness not to participate. People my age will try to jump on the rocket ship and will ultimately get burned - they may exit the stock market after deeming it too risky / might as well spend it. The millennial & gen-z crowd will enjoy their moment in the spotlight as the winners & heroes until the quants figure out how to beat them at their own game and they are eliminated.

With so much media coverage providing negative sentiment the herd will follow and take the market with it. The hedge funds will win, everyone else will lose.

Maybe I am just a cynic.

2008 was a lifetime ago to a millennial. It was yesterday to a boomer/Gen X thinking about retirement.

Yeah...no. Millennial here. I graduated college a year before the bubble burst, and stuck around for a two-year master's program afterward. The job market looked great up through the summer of 2008, and then everything went to hell just as I was starting to look for a full-time job after graduation. I managed to find a pretty good opportunity, but lots of my peers weren't so lucky. Those who went through big periods of unemployment or underemployment have been largely behind financially ever since. That recession was a pretty defining moment for our generation.

Travis

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For those who wonder whether a community of thousands can properly coordinate the buy/sell sequence of this event:


Travis

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I think you are wrong on this.  A lot of millennials remember the struggles their parents went through and the hardships the family endured when everyone lost their jobs in 2008.  I know this because they talk about it non stop. 


Yeah...no. Millennial here. I graduated college a year before the bubble burst, and stuck around for a two-year master's program afterward.

Apparently I'm using the wrong terminology here. What do you call someone born o/a 2000?

HBFIRE

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Apparently I'm using the wrong terminology here. What do you call someone born o/a 2000?
\

Anyone born between 1981 and 1996 is a millennial....so someone graduating around the great recession would fit.  36 yrs old is a millennial.
« Last Edit: January 29, 2021, 06:13:49 PM by HBFIRE »

HPstache

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I think you are wrong on this.  A lot of millennials remember the struggles their parents went through and the hardships the family endured when everyone lost their jobs in 2008.  I know this because they talk about it non stop. 


Yeah...no. Millennial here. I graduated college a year before the bubble burst, and stuck around for a two-year master's program afterward.

Apparently I'm using the wrong terminology here. What do you call someone born o/a 2000?

Not a millenial.  Gen Z. I usually see millenial birth dates ending in 96 or 98.
« Last Edit: January 29, 2021, 08:00:22 PM by v8rx7guy »

 

Wow, a phone plan for fifteen bucks!