For those trying to follow along. Margin lending occurs when part of the funds put on the market are funded by a debt mechanism.
Classically I might invest say $10,000 and the debt facilitate would say provide a $10,000 loan and I’d have $20,000 invested in the market in my name, with a 50% loan to value ratio.
If the investment dropped far enough.. say to $12,000, the margin call facility works like this.
It considers the remaining money is always the lenders, so now the lender is exposed for $10,000/$12,000 eg 83% of the exposure is theirs.
They then ask you to top back up your contribution so they are less exposed (within 24-48hrs), or they auto-sell stock to ensure they are not exposed further.
In the case of Robinhood, the margin lending arrangement is always fully backed once the cash is processed. Which I’m guessing is always reliably a few days after it’s deposited.
So it’s crazy to trigger margin calls as all the debt is quickly fully backed.
It would be expected that Robinhood would have negotiated an instrument that never left them with margin calls on cash contributions like this. This is totally on them.
If the investment dropped far enough.. say to $12,000, the margin call facility works like this.
It considers the remaining money is always the lenders, so now the lender is exposed for $10,000/$12,000 eg 83% of the exposure is theirs.
They then ask you to top back up your contribution so they are less exposed (within 24-48hrs), or they auto-sell stock to ensure they are not exposed further.
In the case of Robinhood, the margin lending arrangement is always fully backed once the cash is processed. Which I’m guessing is always reliably a few days after it’s deposited.
So it’s crazy to trigger margin calls as all the debt is quickly fully backed.
It would be expected that Robinhood would have negotiated an instrument that never left them with margin calls on cash contributions like this. This is totally on them.