A weakness in the Robinhood stock trading app allows investors to trade with seemingly unlimited amounts of borrowed money.
News of the error was first published on a Reddit forum Monday, and Bloomberg News first reported it on Tuesday. In a statement Tuesday, Robinhood said: "We are aware of the isolated situations and communicate directly with customers."
Here's how it works: Robinhood Gold users, the platform's premium level, are allowed to sell covered call options with money borrowed from Robinhood. But the app puts the wrong value of the user's original cash options on hand so they can borrow larger and larger amounts, with no apparent limit. One Reddit user called it an "endless money talk code."
A trader said he made his $ 2,000 to $ 50,000, which he used to buy Apple Inc.
setter. He said he lost it all and posted it on YouTube.
Another trader said on Reddit that he turned about $ 4,000 dollars into a $ 1 million position. "Don't do this," the user said.
The last part is the key.
Georgetown University law professor Donald Langevoort told Bloomberg that traders who take advantage of the error may have to repay it, potentially meeting charges of securities fraud. "If you take advantage of someone's mistakes to put your own pockets, you have to pay them back," he said.