Why Shares Were Restricted from Trading for GameStop, AMC, BB, and More (How a Trade Works)

Описание: In this video I describe the exact issues that brokerages like Robinhood were facing and why they had to restrict the trading of shares. We go through how a trade works, how a trade settles, why this all happened last week, and what you should do!

The WeBull CEO Interview:    • Anthony Denier, CEO of Webull | ZingerNation  

The Patreon Post:   / 46882700  

📌 Subscribe for Weekly Videos: https://bit.ly/humphcrew
► Get $10 of Free Stock of your choice on the Public Investing App ➭ https://pblc.co/humphrey
► Robinhood (get a free stock!) ➭ https://robinhood.c3me6x.net/qPyKY
► Get 2 Free Stocks on WeBull (valued up to $1850 when you deposit $100) ➭ https://a.webull.com/i/HumphreyYang
► Patreon + See What I Invest In ➭ https://whop.com/c/critical-wealth/ytd

► Coinbase (Get $10 in free Bitcoin) ➭ https://www.coinbase.com/join/yang_0wf
► Join the Discord Community ➭   / discord  

How a Trade Works:
This is the flow chart of how a stock trade works. A Broker in this example is something like "Robinhood, WeBull, Fidelity, TD Ameritrade" etc.

Broker A - Clearing House A - DTCC - Clearing House B - Broker B

The DTCC (Depository Trust & Clearing Corporation) serves as an intermediary between all clearing houses. A broker may have their own clearing house, or they may use a third party, which goes through DTCC. DTCC settles more than 95% of trades that settle on the market.

The other thing you must know is that trades "settle" in T+2 days, or they take 2 business days after the trade actually occurs to completely "settle".

Trade settlement is the process of transferring securities into the account of a buyer and cash into the seller's account following a trade of stocks, bonds, futures or other financial assets.

Essentially, settling means that the trade has fully executed.

The DTCC's role is to guarantee that these trades fully execute (so you sell a share, and you get your money for that share).

The DTCC regularly requires collateral from clearing firms in order to manage its risk when it comes to guaranteeing this. Collateral is put up by clearing firms.

On a typical day of trading, if you trade on a Wednesday, the stock would settle on Friday. In between those two days while the trade takes its time to settle, someone has to fund that trade. The clearing firm does that - as one of its jobs. DTCC requires collateral from their clearing firms of about 1-3% for every trade. So lets say its 2% collateral required. If you trade one share of Apple and the stock is worth $100 per share, the DTCC requires about $2 from the clearing firm as a deposit with DTCC for those 2 business days until the trade settles. Now...that's just 1 share.

Because of the massive volume (shares trading hands) that was going on with GameStop, AMC, KOSS, etc, the DTCC raised their collateral requirement rate from 2% to 100%!!! for these shares.

So... why couldn't you buy shares, but you could sell shares on firms such as Robinhood?
If you BUY, the clearing firm needs to front that money for you to the DTCC for 2 business days until the trade settles.

If you SELL, DTCC doesn't require any collateral for sales.

The market exists for buyers/sellers still but the blocking of buying is clearing firm specific.

TD Ameritrade shut down trading on GME on Tues. And then reopened for trading on Thursday. Robinhood stopped on Thurs, limited trades on Friday, and I assume will allow more shares to be bought/sold on Monday.

Bigger firms have their own clearing firms and did not run into this risk because they may have more capital to front $$. For example, Fidelity, Schwab, Merrill, etc.

▶️ My name is Humphrey Yang, I've built multiple businesses and am passionate about Personal Finance. If you're trying to build a solid foundation of financial literacy, learn to invest, or become financially free - then I'm here for you! This channel cover topics like getting out of debt, managing money, building credit, multiple income sources, passive income, etc.

📧 Contact: If you have a question feel free to leave me a comment on my videos or follow me on IG and send me a DM! If you have a business related inquiry, please then send me an email at [email protected]

Disclaimer: I am not a financial advisor, any investment commentary are my opinions only. Some of the products and services that appear on this channel are from companies that I have an affiliate relationship with, such as Robinhood, for which I recieve a small percentage made via those links, but it doesn’t cost you anything extra!

📷 Instagram:   / humphreytalks  
📲 Tik Tok:   / humphreytalks  
🐪 My FREE Newsletter ➭ https://humpdays.substack.com