Robinhood Bug Allows Users to Trade on Unlimited Leverage

Commission-free investing app Robinhood was hit by a trading glitch that apparently allowed certain customers to acquire an ‘infinite Leverage Leverage In financial trading, leverage is a loan supplied by a broker, which facilitates a trader in being able to control a relatively large amount of money with a significantly lesser initial investment. Leverage therefore allows traders to make a much greater return on investment compared to trading without any leverage. Traders seek to make a profit from movements in financial markets, such as stocks and currencies.Trading without any leverage would greatly diminish the potential rewards, so traders In financial trading, leverage is a loan supplied by a broker, which facilitates a trader in being able to control a relatively large amount of money with a significantly lesser initial investment. Leverage therefore allows traders to make a much greater return on investment compared to trading without any leverage. Traders seek to make a profit from movements in financial markets, such as stocks and currencies.Trading without any leverage would greatly diminish the potential rewards, so traders Read this Term’ while trading stocks on its millennial-targeting platform.

Many users flagged this issue on Reddit and other social networking websites. While there is no official confirmation on Robinhood suffering losses resulting from this malfunction, some users on internet forums made claim losses that would be passed onto the no-fee trading Startup Startup A company operating within its first stage of investing is known as a startup. While startups may give the impression that the company must be new, that is not always the case.Many companies can have this designation after nearly three years of existence. Typically, a company exits the startup status after a period between 3 to 5 years or after successful funding rounds where capital is acquired. Startups tend to derive out of the belief that there is a demand for a service or product which is c A company operating within its first stage of investing is known as a startup. While startups may give the impression that the company must be new, that is not always the case.Many companies can have this designation after nearly three years of existence. Typically, a company exits the startup status after a period between 3 to 5 years or after successful funding rounds where capital is acquired. Startups tend to derive out of the belief that there is a demand for a service or product which is c Read this Term.

A Reddit user reflected on this situation, saying, “Remember folks, if you lose 5 grand, it’s your problem. If you lose 5 million, it’s Robinhood’s problem.”

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As a result of the bug, one trader turned his $2,000 balance into the purchasing power of $50,000, but the excessive leverage wiped out his account. Another user supercharged his $4,000 deposit to open a $1 million position.

Robinhood admitted to the technical glitch, saying that the matter is being examined by the internal technical team to analyze and identify the cause, which led to the issue and to suggest solutions to prevent a recurrence.

The yet-to-be patched flaw, dubbed ‘“infinite money cheat code,’ is being exploited in the wild to take over unlimited buying power using borrowed money from Robinhood, regardless of whether the investor uses the full amount.

The users exploited the company’s subscription product, Robinhood Gold, which offers margin trading and extended-hours trading. More specifically, when traders are selling leveraged covered calls, Robinhood mistakenly tops up the values of these trades to their accounts’ equity, which in turn qualifies them to get more leverage.

Although yet to be explained, we expect the bug relates to Robinhood’s cross margining function, which allows traders to offset their positions whereby excess margin from profitable trades is used to satisfy margin maintenance requirements.

Robinhood revealed earlier this year that 75 percent of its transaction volume went through its Gold product.