Some crafty investors using the Robinhood stock-trading app found a workaround in the service that allowed them to trade with what they called “infinite leverage.”
The workaround, which was shared on the social media website Reddit, was found in Robinhood Gold, the trading app’s premium service that allows subscribers to borrow money from the startup to perform trades.
One user on Reddit bragged about taking a $1,000,000 position on a stock after only having to deposit $4,000 into Robinhood’s service. After the discovery, Redditors coined the term “infinite leverage” or the “infinite money cheat code” to describe the backdoor trade.
Many firms allow margin trading of this nature, where the trader puts down a certain amount and the broker lends the remainder. Where it became an issue for Robinhood, though, was when users were able to overstate how much was actually in their accounts to borrow against.
It may be a fairly isolated incident for Robinhood as a spokesperson said they are “aware of the isolated situations and communicating directly with customers,” according to CNBC.
Another user on the service managed to turn $2,000 of stock into $50,000 in buying power. Bloomberg News was the first to report the glitch, but several other Reddit users posted how to use the “cheat code” along with videos and photos of successful attempts.
Robinhood has gained a lot of popularity for its no-fee trading model. It’s valuation tops $7.6 billion and the company boasts more than 6 million users. Many other large firms including Charles Schwab and Fidelity have eliminated fees to cut into Robinhood’s market share.
Discussion of the hack was happening on the subreddit WallStreetBets, which made the headlines recently after a user on the site managed to make a small fortune on options trades. Eddie Choi turned $766 into $107,758 using only two options trades over the span of two days.
