Robinhood's "infinite leverage" loophole has been closed and accounts using the glitch have been suspended, a company spokesperson said Thursday.
A glitch in Robinhood's trading app allowed users to trade with unlimited amounts of borrowed cash, with one trader amassing turning a $3,000 deposit into a more than $1.7 million position.
"We recently identified a small number of accounts engaging in problematic trading activity on our platform," Robinhood spokesperson Lavinia Chirico said in an emailed statement. "We've quickly restricted these accounts, and made a permanent update to our systems intended to prevent anyone from engaging in this pattern of trades."
The typically unauthorized trade involves Robinhood Gold users selling call options with money borrowed through the platform. The app then incorrectly added the value of the sold options to users' buying power, allowing them to repeat the trade with increased capital. Traders then repeated this cycle, with no clear limit to how much the glitch could be exploited.
A member of the WallStreetBets sub-reddit discovered the hack in late October, using a $2,000 deposit to trade $50,000 worth of Apple put options. The trader lost $48,000 when his options expired worthless, and a video of his reaction grew massively popular among WallStreetBets members.
Read more: A personal-finance expert grew his bank account from $2.26 to $1 million in just 5 years. He breaks down the mindset shift that sparked his success - and offers advice for getting ahead.
Other users quickly jumped on the trade, one-upping each other with increasingly large positions. One member of the forum compiled a hall-of-fame list of traders who leveraged the biggest sums.
With the loophole closed, it's unclear what actions will be taken against the traders. One WallStreetBets member who allegedly lost $180,000 through the trade said on November 4 that their account was deactivated for trying to borrow more cash.
"We'll continue to monitor closely for any type of abusive activity on our platform and will take action as appropriate," Chirico said. The spokesperson didn't expand on further actions related to the glitch and participating traders.
Now read more markets coverage from Markets Insider and Business Insider:
Square dumped food-delivery service Caviar earlier this year. Now it's boosted its profit forecast on the heels of strong earnings.
China is reportedly considering a $10 billion investment in Saudi Aramco's record-shattering IPO
Investors are betting $3.3 billion that your gut is the next frontier for the hottest part of healthcare
Next Story
Global stocks rally even as Sensex, Nifty fall sharply on Friday
In second consecutive week of decline, forex kitty drops $2.28 bn to $640.33 bn
SBI Life Q4 profit rises 4% to ₹811 crore
IMD predicts severe heatwave conditions over East, South Peninsular India for next five days
COVID lockdown-related school disruptions will continue to worsen students’ exam results into the 2030s: study
