- Robinhood told day traders on Thursday, hours before the market opens, to raise their cash buffers on the many broad stocks it holds because they could face an account deficit.
- The trading platform said it would “help protect” customers from the rising tide before the US election, from Friday and then increase the minimum amount a user should hold in their account.
- “If you hold any of the affected stocks in the margin, your purchasing power may decrease or your account may have a deficit after these changes take effect,” Robinhood said.
- “If you do not resolve the margin call, we may need to sell some or all of your stock to cover the call,”; it said.
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Robinhood told its users on Thursday, hours before the market opens, to raise their cash reserves to the many wide stocks held.
The retail trading platform, which spearheaded the commission-free stock and ETF trading, said it would increase margin maintenance requirements for stock-affected volatility associated with the election to “help protect” customers.
Packy McCormick, a day trader who writes the Not Boring newsletter, posted Robinhood’s message in a tweet at 9:42 pm ET. Regular trading on the New York Stock Exchange begins at 9:30 p.m.
Some people on Twitter exploded the move. “I’m not sure how it will be legal,” someone said.
Investing in margins means that traders can borrow money as loans from Robinhood to buy stocks and options, making it possible to boost investment returns. In the meantime, maintaining the margin, is the minimum amount a user should hold in their account to avoid Robinhood barriers.
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“If you hold any of the affected stocks in the margin, your purchasing power may decrease or your account may have a deficit after these changes take effect,” Robinhood said.
Robinhood said it will issue a margin call if a user fails to the minimum and does not deposit additional funds to increase the value of their account by the end of the trading day on Friday.
“If you do not resolve the margin call, we may need to sell some or all of your stock to cover the call,” it said.
It is common in futures exchanges for margin requirements to increase as market volatility increases, due to the greater potential for traders to accumulate losses they cannot afford to cover.
Stock-market volatility rose to its highest level since the financial crisis of 2008 and 2009 in the first year as investors around the world dumped equities to hold cash, government bonds, and even gold.
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Also on Thursday, Bloomberg reported that hackers gained access to nearly 2,000 trading accounts on the Robinhood platform.
This week, the company sent a push notification through its app urging customers to use two-factor authentication. Security “is a top priority and something we take very seriously,” a Robinhood representative told Business Insider.
Feminism exploded in popularity amidst the rise of retail trade in part in volatility in markets from coronavirus uncertainty. Lockdowns earlier this year have stopped most sports professionals, for example, and encouraged some amateur investors to try day trading.
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