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Chapter · Master Robinhood

The GameStop episode of 2021

In January 2021, a wave of retail traders, many from a Reddit community, piled into GameStop and other so called meme stocks, sending prices soaring. On January 28, Robinhood suddenly restricted buying of these stocks, allowing only selling. Users were furious. The real reason was collateral: the clearinghouse that settles trades, the NSCC, demanded that Robinhood post billions in collateral overnight to cover the settlement risk of all that volume. Robinhood scrambled to raise emergency funds to keep operating.

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What you get asked

  1. What did Robinhood do on January 28, 2021?

    Robinhood halted new buy orders in stocks like GameStop while still allowing sells. That one sided restriction is what made users so angry.

  2. The clearinghouse called the ___ demanded that Robinhood post billions in collateral.

    The NSCC, the National Securities Clearing Corporation, settles US stock trades. Huge one sided volume raised the collateral it required, which forced Robinhood to act.

  3. Why did the clearinghouse demand more collateral?

    Trades take a day or two to settle. A surge of buying in volatile stocks raised the chance something could go wrong before settlement, so the clearinghouse demanded a bigger cushion.

  4. Put the GameStop episode in order

    The frenzy drove volume, volume drove collateral demands, and the collateral squeeze pushed Robinhood to restrict buying and raise cash fast.

  5. What is a fair lesson from the GameStop episode?

    Behind every tap is a settlement system with real rules. The episode showed that brokers can be forced to act by that plumbing, and that hype driven trades carry real risk.

The rest of this chapter

Learn how Robinhood works, how it makes money, and how to trade with discipline instead of hype.