I was out of the trading business when Robinhood started(2015) and now hear about them all the time. So I was curious. What makes them so special? Here is what I found;
"A user known as u/1R0NYMAN sold a box spread creating a $300,000 credit that should have netted him from $40,000-$50,000 over the course of 2 years. He described the trade as a way to make "risk-free money", but he was unaware of the assignment risk. A few days later some of the options were exercised against him, causing a loss of over $60,000; calculating from the original amount in the user account, $5,000, the return of the trade was -1832.99%.
As a result, Robinhood decided soon after that it would no longer allow the trading of box spreads. The user somehow withdrew $10,000 from the account before the positions were closed and it is believed that the brokerage itself took the majority of the loss."
The "infinite leverage" glitch
"A user known as ControlTheNarrative found a bug in Robinhood's trading platform and exploited it to leverage his original deposit of $2,000 all the way up to roughly $50,000, resulting in a ratio of approximately 25:1 leverage. He sold covered calls and, thanks to the bug, the credit that he received appeared as liquid money on his account. He used the money to buy put options on Apple stock, and the trade led to a loss of $46,000, enormous relative to his initial deposit of only $2,000. He recorded the live reaction to the loss and uploaded it on his YouTube channel." from Wikipedia
"A user known as u/1R0NYMAN sold a box spread creating a $300,000 credit that should have netted him from $40,000-$50,000 over the course of 2 years. He described the trade as a way to make "risk-free money", but he was unaware of the assignment risk. A few days later some of the options were exercised against him, causing a loss of over $60,000; calculating from the original amount in the user account, $5,000, the return of the trade was -1832.99%.
As a result, Robinhood decided soon after that it would no longer allow the trading of box spreads. The user somehow withdrew $10,000 from the account before the positions were closed and it is believed that the brokerage itself took the majority of the loss."
The "infinite leverage" glitch
"A user known as ControlTheNarrative found a bug in Robinhood's trading platform and exploited it to leverage his original deposit of $2,000 all the way up to roughly $50,000, resulting in a ratio of approximately 25:1 leverage. He sold covered calls and, thanks to the bug, the credit that he received appeared as liquid money on his account. He used the money to buy put options on Apple stock, and the trade led to a loss of $46,000, enormous relative to his initial deposit of only $2,000. He recorded the live reaction to the loss and uploaded it on his YouTube channel." from Wikipedia
