ROBINHOOD LOOPHOLE GIVES YOU INFINITE MONEY

Before I start this video, I want to make a very serious disclaimer. The purpose of this video is to describe a newsworthy event, the issues surrounding it, why it's a bad idea to engage in this type of behavior, and bring to light a very serious issue so that it could be addressed. I am not endorsing, promoting, or encouraging any of this type of behavior. Instead, I'm covering the story as it develops that you could better understand the issues at hand and the ramifications this causes. Since this issue has been getting a lot of traction on social media lately and there's a lot of confusion about what's going on, this video is meant to serve as an explanation not so that you could go and do it yourself, but so you could better understand the risks of investing. So do not try this yourself; I do not endorse any of this, and I am only covering a story as it develops here on social media.

What's up you guys? It's Graham here. So, I'll be honest, I thought I was done making Robin Hood videos for a while. I've already covered them a few times in the last month. I've been following all the drama between them and Charles Schwab, and as entertaining as that is, I thought I would just take a break for a little bit and let things simmer down. But I guess not anymore, because this is big enough that we have to address it. We just had some insane events happen over this weekend. It's been absolutely blowing up on social media, and it's too mind-boggling not to cover here on the channel.

This is because someone found a potential glitch or loophole within Robin Hood that pretty much allowed them to essentially borrow as much money as they wanted without any checks in place to prevent this from happening. Essentially, Robin Hood Rose is giving this person infinite money for exploiting this loophole. So, I'm going to be going over exactly how this happened and how this loophole worked to be exploited, and how this user then went to lose fifty thousand dollars of Robin Hood's money in a matter of minutes by literally making the worst possible investments you could ever make on Robin Hood or, actually, in fact, probably in the history of the entire universe. This was the worst investment I have ever seen.

Let me just make this very clear: don't attempt to do anything in this video, and doing anything that I mentioned in here is very, very stupid. I'm not endorsing anyone to go and try this glitch. You will get in trouble, and Robin Hood should be making an effort to make sure this can't happen ever again. Always invest at your own risk; know what you're getting into, and follow all rules and regulations. And, as usual, this video is strictly for entertainment purposes only.

So anyway, with that said, if you wouldn't mind smashing the like button for the YouTube algorithm, it helps up the channel dramatically since this video took me forever to plan out. So, if you wouldn't mind that, that would be great, and let's get into the video. Now, just as a background, this all started a few days ago on a Reddit forum known as Wall Street Bets. It's basically a community of gamblers— I mean, investors— who make wild, outlandish bets on stocks with the small likelihood of making a lot of money. But a lot of the time, it seems they lose money, and then they post about it. Most of the time, reading through this subreddit is just a really good source of entertainment, and it serves as a very good reminder of how not to invest your money.

But every now and then, we just find someone who takes this to an extreme, and that would be our Reddit user Control the Narrative. Now, I have to give him some credit for this because in a weird, twisted parallel universe sort of a way, he's kind of a genius for figuring out this loophole and exploiting it within Robin Hood. Or, in other words, as he calls it, Robin Hood is literally giving me free money. Now here's the short version, and then I'll detail exactly how this works.

So, this user found a way to trick Robin Hood into lending him money— almost infinitely, as much money as he wants— all through an error within Robin Hood's system without them even realizing it. But how he actually goes about figuring out how this works is, in my opinion, extremely creative. Now, for those that aren't aware, Robin Hood has what's called margin trading, and margin is just a really fancy term for borrowing money. This just means that Robin Hood will loan you money to invest with at a 5% interest rate that you'll eventually have to pay back.

Now, in order to be eligible for this type of loan, you would think that there would be some sort of hoops to jump through or some intense verification process in order to vet that you're actually qualified for the loan. But no, I did it all myself in less than a minute. And here's how involved it actually was: first, all you need is a Robin Hood gold account, which you could get for free with a 30-day trial and then you deposit $2,000 into that account. After that, they want to make sure they're not loaning money to just anybody, so they're going to qualify you first.

So they require that you have a suitable investment profile, which is really predetermined by a few questions on the app asking you about your prior experience, sensitivity to risk, and your investment goals. Except here's the thing: you know when you're like 15 years old and you go on one of those websites you shouldn't be going on, and it says you must be 18 plus to enter? Click Yes to confirm you're 18 plus, so you go ahead and click 18 plus and you get in. That reminds me of what it's like to get a margin account on Robin Hood.

Literally, this was one of their questions: "The global stock market is often volatile. If your entire investment portfolio lost 10% of its value in a month during a market decline, what would you do?" And then you got your choices of sell all of your investments, sell some, keep all, or buy more. It's going to prompt you to the next question about your investing experience, your options range from none, not much, to I know what I'm doing all the way up to I'm an expert. And as we all know, how much knowledge you think you have is certainly subjective, with the likelihood that if you think you know everything, then chances are you don't.

Well, anyway, just by clicking I'm an expert and then going through some incoming liquidity questions, none of which required any actual proof of having it, gave me access to Robin Hood's margin account at a rate of two to one. It was as easy as that. That just means that they're going to double whatever money I have in the account and allow me to use that money to trade with. So if I have $2,000 in the account, they will loan me an extra $2,000 to trade with. If I have $5,000 in the account, they'll loan me another $5,000 to trade with, and so on.

Well, on the surface, it seems like a reasonable system if it wasn't going to be abused by people who have no idea what they're doing, who want quick, easy, unrestricted access to money without any regard to their financial well-being whatsoever. Then, yeah, it's a decent system. And this is where our Reddit user Control the Narrative found the exploit. He went and opened up a Robin Hood gold account, called himself an expert, and then deposited $2,000. That meant he doubled his purchasing power almost instantaneously.

He then went and spent $3,800 of that money to buy 100 shares of AMD. And this is where the master trickery begins. Robin Hood allows you to do what's called options trading. This is where you could sell someone the option to buy your stock at a certain price, and that is known as the strike price. So, in this case, he goes and buys a hundred shares of AMD and then immediately goes back and sells 100 shares on a call option, meaning that someone will pay him back all the money he just spent on the shares— $2.00 per share— and then that person gets the right to buy the shares from him in the future for the low price of $2.

And that's what's known as the strike price. The person buying those options is hoping that the price of AMD stock is going to be going up, and then any additional increase in price above that $2 is going to be their profits. People like doing this because they don't want to tie up a whole bunch of money buying the full price of that stock. So instead, they would rather tie up a little bit of money for the option to profit on that stock. Instead, or in other words, he buys $3,800 worth of stocks, sells the option on those stocks for $2 less than he paid, and he gets back $3,600 pretty much immediately.

But Robin Hood would see $3,600 in his account and then double that with another $3,600 on margin, and then within minutes, he now has seventy-two hundred dollars to go and buy more stocks with. Knowing this, he goes and repeats the same thing, except this time now that he has more money he can go and buy two hundred shares of AMD instead. And then again, he could sell all of the call options on that to get most of his money back, which is again doubled by Robin Hood's margin. And then he just continues doing this over and over and over again, racking up more and more money within his account from Robin Hood up to the point where Robin Hood was lending him $25 for every $1 of his he actually had in the account.

This glitch happened because Robin Hood had never realized he never had more than two thousand dollars of his own money in the account because they didn't see that he was actually just selling options to the stock without actually selling the stock up front. So Robin Hood counted this as his assets even though he sold the rights to the stock and someone else had already paid him for the right to buy those shares at a low price, which, of course, they would exercise. That just created an infinite loop. Robin Hood is lending him money for lending him money for lending him money.

Now ideally, Robin Hood should have seen that he was selling his options and not loaned him any more than a two-to-one ratio for how much money he actually has in his account. But obviously, they didn't catch it, and this Reddit user even posted a screenshot showing his margin account health as being good even though he's up to his eyeballs in debt, making risky investments. Or in other words, he's giving a loan and then using that loan as collateral to get another loan, and then using all of that money to get collateral for a loan and keep doing that again and again, all to put it on an all-or-nothing bet that will forever go down in the history of investments and the internet, all for the price of a two thousand dollar deposit on Robin Hood.

So without further ado, this was the investment that he made: he bet fifty-seven thousand dollars that Apple stock would go down in price by six percent on November 1st, 2019. And if it didn't do that, he loses everything. And if that isn't risky enough, he was trading options, which means he is buying the right to sell Apple stock at a certain price, as seen here. Each buy listed right here is for one hundred contracts, or shares, so one hundred and two buys means he has ten thousand two hundred contracts on Apple stock. Multiply that by a cost of five dollars and fifty-five cents per contract, and that means he spent fifty-six thousand six hundred and ten dollars for the right to sell Apple shares at two hundred and forty-two dollars and fifty cents in the event the stock drops below that price.

Now, here's how the math works on that: he is buying the option to sell Apple shares at two hundred and forty-two dollars and fifty cents, and he's paying a five dollars and fifty-five cents premium in order to do so. Meaning that his cost basis for doing this is two hundred and forty-two dollars and fifty cents for the price of Apple stock— his cost of five dollars and fifty-five cents for the option of doing that— which means that he'll start making a profit on this deal as soon as Apple stock drops below two hundred and thirty-six dollars and ninety-five cents.

Now, in terms of how much he could make for every dollar the stock drops below two hundred and thirty-six dollars and ninety-five cents, he is going to make ten thousand dollars in profit. Now of course, fortunately, he did end up hedging his bet by selling his right to sell Apple at two hundred and thirty dollars per share. But regardless, his total investment account value at the time of placing this bet was fifty-seven thousand six hundred and eighty-four dollars. Now, it's important for me to mention that the way stock options work is that they have an expiration date, meaning that you can't just say that you have the right to sell Apple shares for two hundred and forty dollars at some indefinite point in the future over the next thirty years.

Usually, these options are good for a few weeks or a few months. This is less risk to you as the investor, but Control the Narrative decided that he didn't want to spend a few weeks or a few months waiting on Apple. He either wanted to win big or lose entirely, and he thought that Apple would miss its earnings, the share price would drop, and that would be a very quick all-or-nothing profit for him. So, of course, he bought options that expired in one day. This means that he spent fifty-seven thousand dollars on a contract that expires after one day, where if the share of Apple stock does not go down at least 6 percent that same day, he loses everything and his contract is entirely worthless.

And that's, of course, when this video surfaced; it shows this account on trading day after Apple posted their earnings that be analysts' expectations. So because Apple stock price went up, the value of his contracts went down. And because those contracts expired that same day and there was zero chance of Apple ever declining that far in value for him to even break even, he lost all of his money, or actually, he lost Robin Hood's money. Investments like this are insanely risky, and I cringe inside to even call this an investment because at best, it's a gamble, and at worst, it's like betting fifty-seven thousand dollars on a Mega Millions lottery ticket with a one in a hundred million chance of actually winning anything. That's just too much that all needs to line up and happen in one single day for that ever to work out in his favor.

But here's where I find this really interesting: whether or not we'll actually have any legal ramifications for finding and exploiting this glitch and whether or not Robin Hood is actually going to be going after him for this. On the one hand, this user found a glitch in Robin Hood's system and tried to exploit it for a profit. But on the other hand, Robin Hood may actually have some responsibility for allowing this to happen in the first place. Not to mention that actually collecting money from someone who has no money to begin with is pretty much going to be a waste of time; throwing good money after bad and it's just impossible to ever see any return from that.

Now, to make matters even worse, something similar happened earlier this year with another user from Reddit's Wall Street Bets, Irony Man. And, well, the situation was a little bit different; he was able to leverage almost two hundred and fifty thousand dollars on Robin Hood with only a three thousand dollar deposit. And then by the time his options were called, he owed Robin Hood about fifty-seven thousand dollars. Now, any reasonable person would think, well, you know what? He's going to be in trouble for that. He's going to owe all of this money. Robin Hood's gonna go after him. But, as seen on his Reddit post, he just ignored it and let it go, and Robin Hood has still never contacted him or reached out to him with any legal action.

Not to mention, they may actually be liable for this happening in the first place. And I'm not a lawyer here, so take this with a grain of salt for what it's worth, but this is just what I think. The real question is whether or not Robin Hood actually has a legal obligation to protect people from themselves and make sure this never actually happens in the first place. After all, the government has pretty much concluded that the average retail investor has absolutely no idea what they're doing, and they treat them as though they're going to do something like this.

Therefore, the government makes sure there are plenty of safeguards in place that prevent people from going and doing this to themselves. And according to federal regulation, in order to prevent the deposit from being available against the other margin purchases and in effect counted twice, it requires that in computing the customer's adjusted debit balance, there shall be included the amount of any margin customarily required by the creditor in connection with his endorsement or guarantee of any put/call or other option.

Now, again, I'm not a lawyer, but one might maybe be able to argue that Robin Hood is at fault in this by allowing someone to have this happen in the first place, even if it's a glitch that person took advantage of. So, potentially, this just might be an issue that Robin Hood chalks up to a loss. They fixed the loophole, they get the system working again, and then they move on, especially before anyone else attempts to be an idiot. But until then, it's been a very interesting journey to follow this saga and see how deep this really goes because I gotta say, this entire story is absolutely unbelievable, and Robin Hood has to get this fixed. It should not allow this to happen in the first place, and I am very interested to see how all of this plays out.

So with that said, you guys, thank you so much for watching. I really appreciate it. As always, if you guys enjoy videos like this, make sure to destroy the like button, subscribe button, and notification bell. Also, feel free to add me on Instagram; I post pretty much daily. So if you want to be a part of it there, feel free to add me there. Also, feel free to add me on my second channel that is called The Graham Stefan Show. I post there every single day I'm not posting here. So if you want to see a brand new video from me every single day, just go and add me on that channel. And lastly, if you guys want to free stocks— speaking of all of the stock trading, Weebl is hosting a promotion where if you deposit $100 using the link down below in the description, they will give you two free stocks, and one of the stocks is valued up to $1,000. So you may as well just go sign up for a Weeble using the link, deposit $100, and get the two free stocks.

But anyway, with that said, you guys, thank you so much for watching, and until next time.