Robinhood Glitch Lets Traders Borrow Unlimited Funds To Buy Stocks

Man trading on a mobile device. Getty

Robinhood, the mobile trading app that has more than 6 million users, is contending with a glitch in its platform that enables some traders to use unlimited borrowed money to purchase stocks.

Known as “infinite leverage,” traders took to Reddit forums like WallStreetBets earlier this week to brag about the funds they were able to borrow despite the low amounts of cash in their accounts.

One trader boasted being able to get $1 million in borrowed funds with just $4,000. Another trader claimed to be able to borrow $50,000, purchase shares of Apple and subsequently lose the money. Robinhood traders also posted videos and screenshots showing how they were able to manipulate the platform including providing directions.

First spotted by Bloomberg, the glitch enables traders to inflate their account balances when borrowing money on margin. A common practice among traders, traders borrow money from the brokerage to purchase stocks. The firm, in this case Robinhood and its banking partner, acts as the lender issuing the money based on account balances, creditworthiness, and other criteria.

By artificially increasing the account balance the traders were able to get their hands on more money to purchase stocks. In media reports Robinhood said it’s aware of what it called “isolated situations,” saying it’s communicating directly with the customers.

This isn’t the first time Robinhood has had to contend with missteps since launching in 2013. Last year it made a PR blunder when it was forced to pull its new checking and savings account off the market. It boasted an interest rate of 3% but the product ran afoul of regulators. It held off until October in finally rolling out a cash management account, which now has a 1.8% APY.

Despite that misstep and the glitch its dealing with now, Robinhood should continue on its meteoric rise. Since launching in 2013, it has amassed more customers than E*Trade and has a valuation of $7.6 billion.

Venture capitalists can’t get enough of the startup, throwing hundreds of millions of dollars it’s way. In July it raised $323 million giving it the hefty valuation it now commands. It also has aspirations beyond trading. It recently applied for a national bank charter with the Office of the Comptroller of the Currency. Its not clear how far those efforts will go given the OCC is losing its power to grant nonbank entities bank charters.

Robinhood isn’t the only high profile fintech to suffer from technical issues in recent weeks. In mid-October Chime, a popular challenger bank, experienced an outage that lasted more than 24 hours, preventing many of its more than 5 million customers from making payments and accessing their cash. Chime blamed its payment processor, saying it was experiencing problems that brought down Chime’s website and mobile app. In September Chime suffered a similar, albeit briefer, outage.

A journalist for more than fifteen years, I am a freelance writer reporting on personal finance, entrepreneurship, investments, fintech and technology for a variety of media outlets. What sets me apart from my peers is my ability to take complex topics and explain it to the masses. After years of covering the equities markets as a technology reporter and special contributor to the Wall Street Journal, I embarked on a freelance career providing my readers with invaluable advice on everything from investing to landing a job. With the intersection between personal finance and technology getting blurred, cutting through the fintech noise and getting to the bottom of the story is becoming increasingly important to readers around the globe.

Source: Robinhood Glitch Lets Traders Borrow Unlimited Funds To Buy Stocks

Related News:

“Robinhood Markets, Inc. Form 10-K for the fiscal year ended December 31, 2021”. U.S. Securities and Exchange Commission. February 24, 2022.Gannes, Liz (September 23, 2014). “With $13 Million, Robinhood Aims to Share the Stock-Trade Wealth”. Recode. Archived from the original on March 23, 2019. Retrieved March 23, 2019.

“Robinhood lures digital coin traders from Coinbase with a free service”. Digital Trends. February 22, 2018. Archived from the original on May 18, 2018. Retrieved May 17, 2018.Touryalai, Halah (February 26, 2014). “Forget $10 Trades, Meet Robinhood: New Brokerage Targets Millennials With Little Cash”. Forbes Magazine. Archived from the original on September 12, 2014. Retrieved September 26, 2014.

“Robinhood Faces SEC Probe for Not Disclosing Deals With High-Speed Traders”. wsj.com. September 2, 2020. Retrieved October 22, 2020.MORRISSEY, JANET (February 18, 2017). “With No Frills and No Commissions, Robinhood App Takes On Big Brokerages”. New York Times. Archived from the original on February 19, 2017. Retrieved March 17, 2017.

Kane, Logan. “Robinhood Is Making Millions Selling Out Their Millennial Customers To High-Frequency Traders”. Seeking Alpha. Archived from the original on March 21, 2019. Retrieved February 13, 2019.“Robinhood’s revenue fell more than expected at year’s start”. Associated Press. April 28, 2022.

Grothaus, Michael (April 4, 2022). “Robinhood crypto wallet: 2 million customers can now do more with their coins”. Fast Company. Retrieved July 2, 2022.Carney, Michael (December 28, 2013). “Robinhood gets $3M to take from Wall St. and give to Main St. with its mobile-first, zero-commission brokerage”. PandoDaily. Archived from the original on May 13, 2014. Retrieved May 7, 2014.

Touryalai, Halah. “Forget $10 Trades, Meet Robinhood: New Brokerage Targets Millennials With Little Cash”. Forbes. Archived from the original on August 6, 2019. Retrieved November 9, 2019.“Our Story”. Robinhood. Archived from the original on November 9, 2019. Retrieved November 9, 2019.Long, Heather (March 12, 2015). “New Robinhood app offers free trading. Millennials jump in”. CNNMoney. Archived from the original on July 17, 2019. Retrieved July 17, 2019.

Huang, Daniel (January 6, 2015). “Young, Poor and Looking to Invest? Robinhood Is the App for That”. Wall Street Journal. Archived from the original on September 11, 2017. Retrieved August 4, 2017.Constine, Josh (September 23, 2014). “Robinhood Raises $13M To Democratize Stock Market With Zero-Commission Trading App”. TechCrunch. AOL. Archived from the original on March 18, 2017. Retrieved March 17, 2017.

Irrera, Anna (April 26, 2017). “Trading startup Robinhood raises $110 million in new funding round”. Reuters. Archived from the original on August 28, 2018. Retrieved August 27, 2018.McBride, Sarah (April 26, 2017). “Robinhood’s Stock Trading App Is Valued at $1.3 Billion”. Bloomberg News. Archived from the original on May 14, 2017. Retrieved May 14, 2017.

Lynley, Matthew (May 10, 2018). “Free stock trading app Robinhood rockets to a $5.6B valuation with new funding round”. TechCrunch. Archived from the original on April 11, 2019. Retrieved April 24, 2019.Calvey, Mark (February 23, 2018). “Fintech Robinhood leaving Palo Alto for new HQ in former Sunset Magazine site”. San Francisco Business Times. American City Business Journals.

“Robinhood Is Set to Raise at Least $200 Million in New Funding”. June 7, 2019. Archived from the original on June 2, 2019. Retrieved June 7, 2019.“Robinhood launches… UK waiting list”. TechCrunch. Retrieved November 21, 2019.Reinicke, Carmen (June 15, 2020). “‘Credit where credit is due’: Robinhood investors called the market bottom, showing ‘impeccable’ timing, Societe Generale says | Markets Insider”. markets.businessinsider.com. Archived from the original on September 17, 2020.

Fox, Matthew (September 1, 2020). “Billionaires keep blaming Robinhood traders for skewing stock prices. But a new study says the upstarts have minimal impact on the overall market. | Markets Insider”. markets.businessinsider.com. Archived from the original on September 18, 2020. seasoned investors often blamed them for driving the stock market higher. there was little to no correlation between the one-day change in stock price and the one-day change in the number of Robinhood users holding them

Roberts, Jeff John (May 4, 2020). “Robinhood raises $280 million in push for global expansion”. Fortune. Retrieved May 4, 2020.“Robinhood raises $200M as IPO speculation swirls”. Fortune. Retrieved August 23, 2020.Fitzgerald, Maggie (June 30, 2021). “MARKETS Robinhood to pay $70 million for outages and misleading customers, the largest-ever FINRA penalty”. CNBC. Retrieved July 1, 2021.

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