Before the time of SIM Hijacking before the time of 2FA there was number portability and the ease of moving from one carrier to another. Number portability was optimized for ease of porting at the expense of ensuring customer validation by FCC rule because carriers wanted to make portability harder. So before we Duh and Double Duh current state, please keep in mind the balance of ease of use of porting with security. I'm willing to bet now that the rules changes will anger people because porting will become harder.
It is so easy to simplify this problem and say hey big finance and markets you are screwing the investor. When this gamestop issue is the collision of a lot of issues that Techdirt cares a lot about. Personally I find this topic fascinating and the resolution is going to be complex.... So here are some things to think about
1) Robinhood is free! Yea!! Techdirt talks about the value of free. Small investors use Robinhood with its terms and conditions so that it is free. But how does Robinhood make money? How does the platform work? So Robinhood sells its orders to a brokerage firm that settles the trades and makes a profit for doing so. If that brokerage doesn't think it can make money, then the order flow stops (and so does Robinhood)....
2) Robinhood is a technical platform that uses math as the primary driver for its functionality. Duh! So 100 Shares at $10 a share means my account is worth $1000. I lend users (margin) based on value so I might say that you can trade $1100 based on your account value. This is all programmatically figured out. Any risk in giving credit to an individual is borne by Robinhood for margin. Most the time no problem.
3)Economics. Almost always Price = Value. Prices are set by markets for efficiency. People pay for convenience, security, uncertainty, risk a lot of various factors. All things being perfect Price is set by supply and demand. Stock prices are set by future valuation of what investors think a stock will be worth over various timeframes... this can vary by stock. Stock is limited so investors compete with their analysis basically setting the price...
For GAMESTOP THIS MARKET IS BROKEN. NO ONE BELIEVES that Gamestop is worth $470 a share.... most investors think it is worth around $10 a share. Many investors think that it is worth less than that. So they sold shares they didn't own to buy them back at some future point at less than $10. A lot of people felt this way (Short Interest).
4) Stock Market - So the short sellers sold stuff they didn't have. Reddit users bought all the Gamestop shares back and forth raising the price knowing that short sellers would need to close out their positions to limit their risk. However firms like Robinhood are also involved because their investors are holding now millions in price but thousands in value securities. Headlines scream that people are worth millions based on the math of $470 a share times 100 shares = $47,000 but all the firms know once the shorts are forced out that the stock is only worth like $10.... So what the hell happens? Robinhood has no technology separating the price from value... no way to track the risk this creates... so I halt my firm from doing business in these areas...
Everyone is going to stop selling Gamestop. Their platforms aren't designed for this. Rules will change... but this is a much more complex issues than screwing the Reddit users.
Techdirt has not posted any stories submitted by Tom Fitzmaurice.
duh and double duh
Before the time of SIM Hijacking before the time of 2FA there was number portability and the ease of moving from one carrier to another. Number portability was optimized for ease of porting at the expense of ensuring customer validation by FCC rule because carriers wanted to make portability harder. So before we Duh and Double Duh current state, please keep in mind the balance of ease of use of porting with security. I'm willing to bet now that the rules changes will anger people because porting will become harder.
Agree
We are seeing the complete transformation of short selling. It could be that no one will allow it...
The problem with Math, Technology, Economics and Stock Market...
It is so easy to simplify this problem and say hey big finance and markets you are screwing the investor. When this gamestop issue is the collision of a lot of issues that Techdirt cares a lot about. Personally I find this topic fascinating and the resolution is going to be complex.... So here are some things to think about
1) Robinhood is free! Yea!! Techdirt talks about the value of free. Small investors use Robinhood with its terms and conditions so that it is free. But how does Robinhood make money? How does the platform work? So Robinhood sells its orders to a brokerage firm that settles the trades and makes a profit for doing so. If that brokerage doesn't think it can make money, then the order flow stops (and so does Robinhood)....
2) Robinhood is a technical platform that uses math as the primary driver for its functionality. Duh! So 100 Shares at $10 a share means my account is worth $1000. I lend users (margin) based on value so I might say that you can trade $1100 based on your account value. This is all programmatically figured out. Any risk in giving credit to an individual is borne by Robinhood for margin. Most the time no problem.
3)Economics. Almost always Price = Value. Prices are set by markets for efficiency. People pay for convenience, security, uncertainty, risk a lot of various factors. All things being perfect Price is set by supply and demand. Stock prices are set by future valuation of what investors think a stock will be worth over various timeframes... this can vary by stock. Stock is limited so investors compete with their analysis basically setting the price...
For GAMESTOP THIS MARKET IS BROKEN. NO ONE BELIEVES that Gamestop is worth $470 a share.... most investors think it is worth around $10 a share. Many investors think that it is worth less than that. So they sold shares they didn't own to buy them back at some future point at less than $10. A lot of people felt this way (Short Interest).
4) Stock Market - So the short sellers sold stuff they didn't have. Reddit users bought all the Gamestop shares back and forth raising the price knowing that short sellers would need to close out their positions to limit their risk. However firms like Robinhood are also involved because their investors are holding now millions in price but thousands in value securities. Headlines scream that people are worth millions based on the math of $470 a share times 100 shares = $47,000 but all the firms know once the shorts are forced out that the stock is only worth like $10.... So what the hell happens? Robinhood has no technology separating the price from value... no way to track the risk this creates... so I halt my firm from doing business in these areas...
Everyone is going to stop selling Gamestop. Their platforms aren't designed for this. Rules will change... but this is a much more complex issues than screwing the Reddit users.
Techdirt has not posted any stories submitted by Tom Fitzmaurice.
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