I am well aware that I can get under fire for making the case of Robinhood in this community, so allow me to start with some disclaimers:

• I did not take part of the GME/AMC buying frenzy that happened at the beginning of the year, simply because I did not have that much money to spare and I tend not to take financial advice from online memes.
• I never invested anything in Robinhood, I did create an account, before all of this happened, simply to receive that one free stock because who doesn't like free money?
• I am not writing this article to say how perfect Robinhood is (they're not, and they're not endorsing me or this post in any way), I simply did my own research, as is the custom in our crypto/investing world, and found out that they were not necessarily this demon company driven by the rich for the rich that they appeared to be at first glance.

Now that this is out of the way, let's see why Robinhood is not all evil, let's see what they did exactly and, most importantly, let's see why they did it.

The facts

If you're unaware of what I'm talking about, here's a very fast breakdown of the trading frenzy that occurred in January 2021:

• Internet traders (from a subreddit called r/wallstreetbets and focused on stock investing) noticed that big hedge funds (companies who invest/trade millions of dollars daily) were shorting ("betting" on a price decrease) some companies, including GameStop (GME).
• For some reason (memes, hatred of the ultra-rich and their system, democratization of trading...), this internet community started buying shares of GME, making its price skyrocket and putting the hedge fund in a pretty complicated financial situation (remember they put all their money and hopes on the price going down).
• In a matter of days, the price of one share went from less than $20 to almost $500, turning internet meme spreaders into millionaires and sending major hedge funds toward bankruptcy.
• The big majority of the average trader Joe uses trading apps that charge no commission on trades and are extremely easy to set up and use, like Webull, Public, or Robinhood.
• On January 28, Robinhood released a statement announcing that, "due to market volatility", they were halting stock purchases for some companies, including GME. It was still possible to sell said stocks however.
• Immediately followed a huge backlash from the internet meme army of wannabe day traders, and for good reason. What they saw was their trusted investing app failing and betraying them. They saw an app designed for individual traders preventing them from "playing" the big corporations' game and thus protecting these corporations. Reddit and Twitter were full of angry investors who were calling users to boycott Robinhood and move to Webull or other competitors.

Up until recently, the extent of my knowledge on the matter was that Robinhood statement, and that's probably the case for the huge majority of the people involved, but that's where Robinhood failed, in my opinion. This was probably the worst PR stunt in their history.

Now that you're up to date, let's see why Robinhood halted trading, and to understand that, we first need to look at how it works under the hood (no pun intended).

How does Robinhood (and all other brokerages) work?

When you buy a stock on Robinhood, you, as a user, see this:

• You choose how many shares you want from XYZ company, and click "Buy".
• You almost immediately see the shares in your account and boom, you're a proud owner of XYZ company.

This is designed to simplify the experience for non professional traders and make the whole thing simpler and more enjoyable. What really happens from Robinhood's point of view is pretty different though:

• You choose how many shares you want from XYZ company, and click "Buy".
• The order is then sent to a clearing house (or clearing firm). This is basically the middle man between the exchange (Robinhood) and the market.
• The clearing firm will queue the order, put it out on the market and try to find the best seller at the best price for you.
• When a match is found, then the order is executed.
• Once this is done, the trade needs to be checked to make sure everything is in order (and the price and number of shares indeed match what you asked for), and then reported to the appropriate authorities for clearance.
• After clearance, some more legal steps happen to validate and then record the trade, officialize custody of the shares and so on.

This whole process can take one to three business days. So, even if you instantly see the shares in your portfolio when you buy stock on an app, keep in mind that it takes a while for it to be officially legally yours. All brokerages work this way (Robinhood, Webull...), the only thing that changes is the clearing firm with which they interact. Robinhood is a special case because they have their own clearing house: RHS, Robinhood Securities (as opposed to RHF, Robinhood Financial, aka the app). But, even though it all belongs to the same mother company, it's still 2 separate entities that act and work exactly like all other apps.

So what actually happened?

I think you might see where this is going now. When Robinhood blocked purchases of GME stocks, it was not the app preventing users from investing, it was RHS telling the app "you guys are sending us way too many orders right now, there's no way we can properly deal with all of them in time".

With that many orders and that many shares "bought" in such a short period of time, and with the prices rising like crazy every second, it was virtually impossible for clearing firms to ensure that the asking prices could be met, or even that there would be enough shares left for the most recent orders once the older ones got processed.

I think it's also important to remind you that this was the case for all other brokerages as well. Webull, the "safe haven" where upset traders flew in big numbers, halted trading that day too, as did most other trading apps, even if only for a few hours. Some clearings houses are bigger than others, they all manage their orders differently, but this situation was unseen before, and the problem that resulted from it was definitely global.

I'm no expert (and if I misunderstood or explained poorly something, please correct me in the comments), I just read some articles, watched some videos, heard arguments from both sides, and I encourage you to do the same. I was surprised and disgusted by Robinhood's behavior on January 28, and I supported all the traders who wanted to buy but couldn't, without understanding what was actually happening. That's why I did my own research and came to the conclusion that it's not always all black and white. I'm not asking you to fall back in love with them, but hopefully this article gave you another perspective on their actions.

Was their communication bad? Probably. Should people (me included) read more before making assumptions? Definitely. Did they have to halt trading? I believe it was a necessary evil, because things could have gone even worse if orders could not have been executed properly...

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