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Robinhood's 'Infinite Money' Glitch

GUH!

By Langa NtuliPublished 2 years ago 4 min read
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r/WallStreetBets (WSB) is one of Reddit's most popular subreddits, with its signature tagline of "Like 4chan found a Bloomberg Terminal."

WallStreetBets has 12.4 million 'degenerates' (or 'autists'/'apes' as some call themselves) discussing stocks and options. The subreddit is well known for its 'colourful' profanity, unusual jargon, and highly speculative, gambler-like trading.

Many members of this community are avid users of Robinhood. The trading platform has two plans: a free package and 'Gold' at $5 monthly. Among other things, the main difference is that Gold provides margin with a minimum $2000 deposit.

Margin or leverage is the concept of using 'borrowed' funds from a broker to trade far bigger positions with a smaller pool of money. In simpler terms, it's a way to potentially make (or lose) a lot with a little.

Typically, you can leverage up to 2x of your holdings on Robinhood. So, for instance, you can buy stock worth $1000 with at least $500 (instead of putting down the full $1000).

On Halloween of 2019, a Reddit user showed the world how to increase this leverage substantially.

Enter he who controls the narrative

In short, Robinhood experienced a bug for several days that allowed users to artificially inflate their leverage to 'infinite' levels. The now infamous Redditor named u/ControlTheNarrative first discovered the glitch.

He is often humorously referred to as 'GUH' (more on this in a bit). Before making it onto WSB's 'hall of fame,' ControlTheNarrative was just another Redditor debating politics, capitalism, population control, and making negative comments about women.

This was until he discovered WallStreetsBets, where he got sucked into options trading. The young ControlTheNarrative had a 'YOLO' where he posted a video a few weeks before the epic moment.

Here, he borrowed tons of money to buy Microsoft money options, leading to a loss of over $30 000. Somehow, the user dug himself out of this 'margin call grave' and was back on Robinhood.

The 'infinite money glitch' explained

However, this time, ControlTheNarrative somehow stumbled upon a simple but highly efficient loophole. So, he re-applied to Robinhood Gold.

"Aren't you the guy who just lost $30 000–"

"Yes, I am, but I'd like to re-access margin, please."

With a $2000 deposit, he now had $4000 of trading power. The user decided to buy 100 AMD stock options which cost $32 each (resulting in a total $3200 value).

This left him with a balance of $800. But, for some strange reason, when ControlTheNarrative quickly sold his shares (resulting in a $4000 balance), Robinhood's system recognized the new balance as his own money.

So, he could leverage up to $8000. What did he do? He doubled his stake to 200 shares of AMD (200 X $32) and had $6400 worth of stock. Again, this showed as his own money when he sold the stock.

With $8000, he could leverage up to $16 000; and so the cycle continued. ControlTheNarrative planned to increase his initial $2000 by 25 times, reaching $50 000 of buying power.

Seemingly excited, he then made a Reddit post about what he did.

ControlTheNarrative decided to go all in with about $48k and bought Apple puts (a financial instrument giving you the right to sell it at a specific price and date). His timing couldn't have been worse, as this was before the company's earning report.

The result for Apple was positive, quickly increasing the stock's price and wiping out his account. Luckily for us, the Redditor recorded his 'bankruptcy speed run' and posted the reaction video online.

Towards the end of the clip, after seeing the red in his position, he makes a strange 'guh!' sound in disbelief. This has since spawned countless parodies and memes on WSB.

Before Robinhood caught wind of this bizarre story, it made it onto Reddit's homepage and, of course, WSB. Various Redditors like MoonYachts and Call_Warrior exploited the bug, turning thousands into hundreds of thousands or over a million dollars in no time.

Another user, r/Tomatotowers, even told Business Insider this was "not a glitch, but a feature."

Nonetheless, the story made it onto places like Bloomberg and CNBC. Robinhood identified the glitch, suspended the users who manipulated it (about 20), and updated their systems.

The lesson to be learned

If things had gone the other way, people would have called ControlTheNarrative a genius. Sadly, Reddit has suspended his account, and no information exists on his whereabouts. So, what can we learn?

Such an incident should show us that investing is not gambling nor a game. Also, leverage is not free money and can burn a hole in your pocket.

But still, the legend of GUH! will live on forever.

This piece was originally published on Medium.

investing
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About the Creator

Langa Ntuli

- fascinated by the financial markets & TradingView charts. Freelance writer @upwork (www.upwork.com/freelancers/langan)

Medium account: medium.com/@lihle_ntuli

Also a humble music nerd, football fan, knowledge hoarder, peace/love extremist.

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