Do you honestly think the situation would have been better if they prevented both buying and selling? At least with the current approach people could sell their shares as the price dropped. It would have been much worse in my opinion if people just had to sit and watch as the value of their positions evaporated with no recourse.
The price dropped because there was no buying pressure (speculation of players shorting the stock at the top aside). Disabling the ability to buy in several brokerages removes the price discovery aspect of the system.
The price dropped because it is in an insane bubble at the moment. Whether that drop would have happened today or some other day without RH's actions is unknowable. But if a lesser drop still did happen today and people couldn't sell their positions, that would have been even worse for users.
> The price dropped because there was no buying pressure
Robinhood is not the entire market. I don't know what the exact number is, but I doubt they're even a material number of the entire stock market.
If Robinhood is the entire buying market, to the point that Robinhood pausing buying is detrimental, then how does that not make it clear that this entire situation is setting up Robinhood users to lose everything they buy?
Robinhood was not the only firm blocking buying new positions. Schwab did, TD Ameritrade did, and ETrade did, IBKR did for varying lengths of time. That is the majority of retail.
Here is a fascinating interview with the CEO of IBKR where he literally says they prevented buying for retail and closed large short positions for others:
https://streamable.com/ycdec9
For the retail investors, if a broker didn’t foresee systematic risks and cannot clear, the better thing can happen is the broker own up to mistakes and go bankrupt.
Bankruptcy is legal and investors understand such risks.
>Bankruptcy is legal and investors understand such risks.
The type of retail investor that is using RH doesn't understand the bankruptcy process and certainly wouldn't be happy to be stuck in SIPC limbo while the value of their stock plummets. When it comes to what is best for RH users, this seems like it was one of the least bad options among a collection of horrible options that are due to the way RH is managed.
Sec would crack down if you didn’t let me people close their positions and RH would be on the hook for any losses incurred. I assume you can still buy GME on RH if you wrote a call option or shorted the stock. You’ll also still able to execute your call option to get shares.
If Robinhood couldn't meet their collateral obligations then they should have just gone into default/bankruptcy. They absolutely should not be allowed to make market manipulation decisions that bail themselves out.
