The investor must then either deposit additional cash into their account to meet the margin maintenance requirement or close out their position(s). So, if the market is volatile, as it has been recently, and the value of securities in a margin account falls too far, Robinhood will issue a margin call. These requirements are minimum portfolio values that must be maintained by the investor, and they help Robinhood protect the money they’ve loaned. Because securities purchased on margin are used as collateral against the loan Robinhood extends, Robinhood sets “margin maintenance requirements” on each margin account. One of the most significant risks of margin investing stems from margin calls. On the other hand, if the securities decrease in value, the margin investor is at risk of losing more than they would have had they invested $10,000 of their own. If the securities in the margin account increase in value, the investor has the opportunity for a higher profit than they would have had they invested $10,000 of their own. This type of investing increases both purchasing power and financial leverage. The “margin” is the difference between the value of the securities and the loan from Robinhood. An investor deposits $5,000 cash into a margin account, and Robinhood lends another $5,000 to allow the investor $10,000 worth of securities. Let’s consider an example of margin investing with Robinhood. Recent market volatility has shed a light on some of these risks, particularly for users of app-based platforms like Robinhood. And, as ever, if you’ve found this an interesting and/or useful read, please do SHARE with friends and family.Margin investing offers the opportunity to super-charge investments, but it also holds quite a bit of risk. This continuing trend should remind us to do what we can to secure our identities and data: see our previous article on this topic. This latest incident also continues a trend of major data breaches - following T-Mobile in September and Twitch in October. Robinhood experienced a previous security breach in 2019 when thousands of accounts were hacked. This July, Robinhood went public on Nasdaq, under the name, HOOD. Robinhood is a community-based stock trading app that was founded in 2013 by Vlad Tenev and Baiju Bhatt - with goal of giving everyone access to financial markets. Nonetheless, with 18 million users, 7 million victims constitutes a shocking one-third of total users being affected. Thankfully, users’ bank account information and other sensitive data remained secure and there have been no monetary losses. In a blog post, Robinhood explained that an “unauthorized third party” carried out the leak through its customer support systems. Robinhood has been working with law enforcement to investigate the situation and has also recruited Mandiant, a security firm. Approximately 310 individual’s full details (name, DoB, address) were exposed - and even more information was leaked on ten individuals.Īfter the intrusion was reported, the third party demanded an extortion payment. On November 3 rd a malicious third party gained access to the data stash, which included full names and email addresses primarily. Robinhood, a well-known financial trading app, announced on Monday 8 th that it had been the victim of a data breach - exposing the personal information of approximately 7 million users.
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