The past few months have shown us the importance of transparency about how our business and our industry works. In keeping with that, we wanted to respond directly to a recent Reddit post, which inaccurately implies that customers don’t own the shares they buy through Robinhood.
To be clear: You own the shares you buy through Robinhood as soon as your order is executed. Period.
No, we don’t engage in contract for difference (CFD) trading, which is a type of forex trading. Robinhood Securities is a clearing broker dealer, not a market maker, and we don’t sell shares short.
The two-day settlement period works the same at every brokerage, including Fidelity, TD Ameritrade, and Charles Schwab. You can learn more about the two-day settlement process here. We have called to shorten the settlement period.
Downgrading from a margin to a cash account won’t impact your ownership or the price of the shares you hold, nor will transferring your shares to another brokerage.
The bid-ask spread is determined by the national best bid and offer (NBBO). Neither we nor the market makers have the ability to set the spread — the best prices available on all market venues combined set the spread. We are required to route market orders immediately for execution and the orders our customers enter, combined with the orders of all investors and market participants, determine how wide the spread is at any given time.
Have you ever checked your Robinhood account and noticed some of your stocks mysteriously disappeared? Or maybe you’ve heard horror stories from other investors who had their positions liquidated without warning? If you’re worried about Robinhood selling your stocks without permission, you’re not alone. This is a concern that many retail investors face and understanding your rights is crucial.
As someone who’s been following investment platforms for years, I gotta tell you – this is a topic that gets people really fired up. And rightfully so! Nobody wants their hard-earned investments messed with without their say-so.
Why Robinhood Might Sell Your Stocks Without Asking
Before you panic, it’s important to know that Robinhood (and other brokerages) can legally sell your stocks under certain circumstances Yeah, I know, that sounds scary, but there are specific situations where this happens
Margin Calls
One of the most common reasons Robinhood might liquidate your positions is a margin call When you trade on margin (essentially borrowing money from the broker to buy more stocks), you’re required to maintain a certain equity percentage in your account.
If the market turns against you and your equity falls below the maintenance requirement (typically 25% for Robinhood), several things happen:
- You’ll receive a margin call notification
- You’ll be asked to deposit more funds
- If you don’t respond or add funds, Robinhood can sell your securities to bring your account back into compliance
Many investors don’t fully understand how margin works when they enable it, which leads to surprises when liquidations occur.
Options Assignments and Expirations
If you’re trading options on Robinhood, there are specific scenarios where your positions might be closed automatically:
- Expiring options: If you have options that are about to expire in-the-money but you lack the funds to exercise them, Robinhood may close the position
- Risk management: If you have a spread position that presents assignment risk, Robinhood might close it an hour before market close on expiration day
- Early assignment: When you’re assigned on the short leg of an options strategy but don’t have the capital to fulfill the obligation
Account Violations
Repeated violations of trading rules can also trigger automatic liquidations:
- Pattern day trading violations when your account is under $25,000
- Good Faith Violations
- Free-riding violations (selling securities purchased with unsettled funds)
Negative Balance Protection
In some cases, Robinhood may liquidate positions to prevent your account from going negative, especially during extreme market volatility.
Real-Life Experiences with Unauthorized Selling
I’ve heard from numerous traders who experienced unexpected liquidations. Here’s what some of them shared:
“I woke up to find my GameStop shares sold during the January 2021 squeeze. I was using margin but thought I had plenty of equity. Turns out the volatility caused my maintenance requirement to increase overnight.” – Jake T.
“My call options were sold an hour before market close even though they were profitable. Robinhood said it was their risk management policy, but I missed out on thousands in gains.” – Melissa R.
The frustration is real, and many investors feel blindsided when it happens to them.
What You Can Do If Robinhood Sells Your Stocks Without Permission
Immediate Actions to Take
If you discover Robinhood has sold your securities without what you believed was proper notification or justification, here’s what you should do:
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Document everything
- Take screenshots of your account
- Save all notifications and emails
- Record dates, times, and specific positions affected
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Contact Robinhood support immediately
- Submit a detailed ticket through the app
- Follow up with an email to their support address
- Be clear, concise, and factual about what happened
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Review your account settings and agreements
- Check if you were using margin
- Verify if you had any options expiring
- Review the customer agreement you signed up with
Filing a Formal Complaint
If you’re not satisfied with Robinhood’s response, you can escalate your complaint:
- File a complaint with FINRA (Financial Industry Regulatory Authority)
- Submit a complaint to the SEC (Securities and Exchange Commission)
- Contact your state securities regulator
These regulatory bodies take investor complaints seriously and can help mediate disputes.
Legal Options
In some cases, investors have pursued legal action against Robinhood:
- Class action lawsuits (especially after the GameStop trading restrictions)
- Individual arbitration as specified in the customer agreement
- Small claims court for smaller amounts
Remember that legal action should be a last resort after exhausting other channels.
How to Prevent Unwanted Liquidations on Robinhood
Understand Your Account Type
The first step in protecting yourself is understanding exactly what type of account you have:
- Cash account: Your stocks cannot be sold without your permission except in extremely rare circumstances (like court orders)
- Margin account: Your securities can be liquidated under the conditions we discussed earlier
If you’re not comfortable with the risks of margin, consider downgrading to a cash account.
Set Up Safety Buffers
To avoid margin calls and forced liquidations:
- Maintain at least 50% equity in your margin account (double the typical requirement)
- Keep extra cash as a buffer during volatile market conditions
- Set up price alerts well before margin call levels
Monitor Your Account Regularly
Don’t set and forget your investments, especially if you’re using margin or options:
- Check your account daily if you have margin positions
- Set up mobile notifications for all account activities
- Pay special attention around options expiration dates
Understand Robinhood’s Policies
Take time to actually read (I know, boring!) the customer agreements and learn about:
- Margin maintenance requirements
- Options expiration procedures
- Pattern day trading rules
Most investors skip these documents, which leads to surprises later on.
Alternatives to Consider
If you’ve had bad experiences with Robinhood or are concerned about their policies, you might consider other brokerages:
Traditional Brokerages
- Fidelity
- Charles Schwab
- TD Ameritrade
These established brokerages often have more comprehensive customer service and clearer communication about potential liquidations.
Other Commission-Free Options
- Webull
- Public
- SoFi Invest
Each platform has its own policies regarding margin calls and liquidations, so research thoroughly before switching.
The Regulatory Perspective
Financial regulators have been paying increasing attention to Robinhood’s practices:
- In December 2020, Robinhood paid a $65 million fine to the SEC for misleading customers
- After the January 2021 GameStop trading restrictions, multiple congressional hearings were held
- FINRA fined Robinhood $70 million in June 2021 for system outages and misleading communications
These regulatory actions have pushed Robinhood to improve some of their practices, but investors should still remain vigilant.
The Bottom Line: Protecting Your Investments
Let me be super clear – the best way to prevent Robinhood from selling your stocks without permission is to:
- Use a cash account if you’re concerned about liquidations
- If using margin, maintain ample equity and understand the risks
- Read and understand all notifications from the platform
- Keep detailed records of all your transactions
- Be especially careful with options trading
I’ve seen too many investors learn these lessons the hard way. Don’t be one of them!
Remember, investing platforms like Robinhood have revolutionized access to markets, but they come with their own set of rules and risks that might not be immediately obvious.
Frequently Asked Questions
Q: Can Robinhood really sell my stocks without telling me first?
A: Yes, in specific situations like margin calls, they can liquidate positions after sending you notification. However, some users report not seeing these notifications until after the liquidation.
Q: What’s the difference between how Robinhood handles liquidations compared to traditional brokers?
A: Traditional brokers often make more attempts to contact you before liquidation and may give you more time to resolve margin calls. Robinhood’s automated systems tend to move more quickly.
Q: If Robinhood wrongfully sold my stock, can I get it back?
A: It’s challenging to reverse a liquidation, but if Robinhood truly violated its own policies, you may be eligible for compensation for your losses. This would require proving the liquidation was improper.
Q: How quickly can Robinhood sell my stocks after a margin call?
A: Robinhood can liquidate positions the same day a margin call is issued if market conditions are deteriorating rapidly. In more stable conditions, you may have 2-3 days to deposit funds.
Q: Will switching to a different broker solve these problems?
A: All brokers have liquidation policies for margin accounts, but some provide better communication and more flexible timeframes for meeting margin calls. Research any new broker’s specific policies.
In conclusion, while Robinhood offers convenient, commission-free trading that’s revolutionized investing for many of us, it’s crucial to understand the fine print. By knowing your rights and responsibilities as an investor, you can better protect your portfolio from unwanted surprises like having your stocks sold without your explicit permission.
Stay informed, trade wisely, and keep those investments safe!
