I will eat my hat if this isn't a (perfectly standard, happens all the time) margin call that people are misunderstanding because they don't invest much and that RH is communicating incredibly badly. Thread: https://twitter.com/arkhondh/status/1354834763245359111

People think that you have to spend money to buy stocks, because they're used to their IRA account or whatever working like that, but full-service brokers (which your retirement accounts usually aren't) allow people to trade "on margin": basically, your broker gives you credit

--based on the value of the securities you already own with them, using those securities as collateral. Think of it like taking out a mortgage on your portfolio -- it's not a perfect analogy, but I'm simplifying like whoa here.

Just like a bank wants to make sure the value of your house is more than the amount they lend on the mortgage, a broker will get nervous when the stock you pledged as collateral goes way down in value (or looks like it will). When that happens, they're at risk --

-- because they loaned you the money, and if they don't have adequate collateral in that loan, the risk transfers from you to them. Brokers, to put it mildly, are nowhere near as risk tolerant as investors (or hedge fund managers or day traders).

(Think of brokers like Robinhood as eBay: they aren't the people doing the buying and selling, they're the ones running the site and taking a cut of transactions. Or to use the MMO analogy, they're the World of Warcraft devs running the auction house.)

(Again, these are all highly imperfect analogies, but without getting into a ton of explanation, it will do for the purposes of this thread.)

When the value of the securities you pledged as collateral drops or looks like it's about to, the broker makes a "margin call": they make you either deposit more cash or securities to increase the value of what they're holding as collateral for the loan they gave you.

Or, as we see here, they liquidate a part of your portfolio that's over-leveraged: the stuff they lent you money to buy that is no longer covered to their satisfaction by your collateral. This reduces *their* risk of loss, at the expense of your potential loss--

--because they chose what to sell, not you. There are rules and regulations about margin calls and how a broker can do them, what they can forcibly sell, and when/how they can sell it. It's been a very long time since I had my licenses; I don't remember the rules well enough.

Because I don't remember the rules well enough and I haven't looked at Robinhood's policies about margin calls, I can't say if they followed them or not; it's possible this particular margin call is still sketchy, and also possible that it's perfectly fine.

But the act of "your broker sold some shit out of your portfolio" itself isn't automatically sketchy, especially since a LOT of the WSB how-to-do-this instructions I've seen have utilized trading on margin, which Robinhood does allow new investors to do.

(Without adequate instruction or warning, IMO, but that's a whole separate issue. Like many other of the more obscure bits of the stock market, it's possible to get into a LOT of financial trouble trading on margin if you don't know what you're doing.)

tl;dr: your broker selling parts of your portfolio is perfectly legal and normal in some situations & this isn't automatically sketchy or RH conspiring with anyone. RH likely saw that their potential exposure here was too big for them & activated the standard methods to fix it.

All of this, btw, is why you should never make even the most basic stock purchases with money you can't afford to lose every last penny of unless you know enough about the system that you don't need a thread on Twitter or Reddit to explain things to you.

To put that advice into perspective: in my 20s, I held for a while the license you need to trade on the floor of the NYSE, one of the most difficult professional licensing exams in the country. Our investments are 100% mutual funds, and most of them are index funds.

Why? Because I do NOT have the spare brain capacity to stay on top of shit, and I left the job that needed the license (which wasn't even a trading job!) because I hated the mental overhead it took.

tl;dr of the tl;dr: this is not inherently sketchy on RH's part, and while it could possibly still BE sketchy, it's way more likely to be a perfectly standard thing they are just communicating very, very badly to novice investors.