I think what Robinhood is doing with Gold accounts is pretty shady. I'm guessing that the vast majority of people who trade on margin don't fully comprehend the risks in doing so.
It's not rocket science, and it is obviously a loan. How is margin shady? This claim that it is somehow predatory or that consumers need to be protected is nonsense. This assumes that people can't do research and due diligence. If you aren't informed to make financial decisions than you probably shouldn't be trading. If you choose to proceed, do so at your own risk.
All brokerages offer margin and typically this is how they make their money, not commissions.
Margin isn't shady in the form that it takes at every other brokerage. Robinhood's Gold is shady because they make every attempt to market it as a higher membership tier, to young unsophisticated investors. It may not be illegal, but it certainly seems like a dark pattern.
> I bought Express stock EXPR yesterday. I know a girl who works there and I thought it would make a good conversation piece but now today the stock is going down really fast. That's the one I want to return. I don't want to have to go into the actual store to talk to them about this I was hoping there was an option to do it online.
That's someone having a laugh at the expense of a bunch of fools who think they're so much smarter than him.
It's so bad. If you offered the same people a loan at x% annual interest rate, I bet far fewer of them would bite, but that's exactly what the Gold monthly fee is.
At $10/mo (=$120 year), assuming a 1.5% interest rate, you're actually saving money on interest expenses if you invest more than $10k on margin for > 1 year. Doesn't sounds that bad to me?
The broker first contacts the investor to allow them to deposit more money to bring up their equity percentage; if thet doesn't work, they sell the borrowed assets to get the percentage up.
One feature of margin loans is that you are required to have assets to cover them. A relic of the great depression, IIRC.
Those collateral assets start out covering the loan, but are often invested in the same assets as the borrowed money and will loose value at the same time. So when the collateral no longer covers the loan, the investor gets a margin call and doesn't have the money... then what?
Does the broker have any recourse to credit bureaus or courts?
