Why Robinhood disabled buys but not sells
Everyone assuming a conspiracy theory needs to read this.<p>Keep in mind that Robinhood also gives everyone a margin account by default. They also let people invest on margin before their inbound bank transfers arrive (Robinhood Instant). The influx of new traders sending money to Robinhood or selling other stocks to buy GME quickly drained their credit lines, reducing the capital they had available for collateral.<p>Keep in mind that when someone sells a different stock to buy GME in the same day, they&#x27;re buying GME on margin. Stock trades don&#x27;t settle until T+2, so any new purchases using those proceeds are done on margin.<p>This was a capital crunch at Robinhood due to an unexpected herd of new traders all looking to do the same thing in unison. It violated the assumptions of their business model, and the only way to keep the platform from grinding to insolvency (or violating regulations) was to slow down the unexpected event by slowing meme stock purchases.<p>Is it really so hard to believe that such an unprecedented mass movement would break the underlying business assumptions of a pre-IPO startup that was heavily dependent on their credit lines?<p>The biggest problem is Robinhood&#x27;s poor messaging. It&#x27;s clear their highest priority was to avoid admission that they were running out of money. They didn&#x27;t want to trigger a bank run or shake the confidence of their newly acquired users, so they tried to obscure the message as much as possible. As a result, the popular narrative assumed some sort of evil conspiracy theory.