Robinhood has been one of the leading trading platforms for a long time. If you have ever used Robinhood App, you might have known that the default setting enables Sharing Trading, also known as Margin Investing, the way it appears on the app. By following this process, users can loan out the user’s stock to other users. Although many people use this feature, some users might not like it. So, they can turn it off.
To disable the margin investing feature (share lending) through the app, one has to follow the below-given steps:
- Open the app
- Hit the account button, which is at the bottom right of the screen
- Go to the settings option
- Select the “Robinhood Gold” from the list
- Click on “Margin Investing” at the top
- Click on “Disable Margin Investing” on the screen
- Go back to the “Äccount” screen
- Go to the “Investing” menu
- Select “Day Trade Setting” from the list
- Disable the “Instant Settlement” option
It is important to note that turning off margin investing through the app is available to Robinhood Gold customers only. However, everyone else can disable the Instant Settlement feature, which also prevents the share lending feature.
You must know that changing the instant settlement settings will temporarily block the purchase of stocks. However, stocks can be sold anytime by investors.
The feature of share lending or margin investing can support short-sellers and hedge funds. However, it is opposed by many active traders.
Those against the feature of share lending turn off this feature as soon as possible.
Yes, your shares may be lent out using Robinhood. But here you need not be worried, there are some steps to accomplish this task.
You might be curious to know what Robinhood does with your shares or if your shares are lent out to other investors, then first of all you need to know about what share lending is?
To generate extra income from equities, investing organizations like Robinhood lend out shares to borrowing investors, business firms, and traders. This creates additional revenue, and the untraded securities in the portfolio are also utilized.
When it comes to the frequent borrowers, short-sellers are always on the top, they provide lenders with the security in the form of cash or assets.
Here I am sharing the complete step by step details on how exactly the share lending works.
- First of all, third party agents have been deployed by the institutional investors to match their shares with borrowers. Such agents are paid a percentage of the loan’s income as a service fee.
- The agents set the costs in advance and are determined by the amount of demand for the lent security.
- To earn further interest or profits, the institutional investors or lenders reinvest the collateral while their shares are out on loan.
- The borrowers or collateral in the whole process may be hedge funds, broker-dealers, other banks, and other key agents. When they have completed their work using the shares, they send them back to the lenders.
- If the borrowers or collateral is given cash as security, then the part of the income generated from their cash using reinvestment will be returned to the borrower.
If you are an individual investor, then it is very easy for you to share lending with Robinhood. Let’s know-how to share lending on Robinhood work.
- First of all, all the shares that are owned by retail investors are collected by Robinhood and then matched with retail investors who need shares to borrow.
- The shares are lent against the borrower’s cash or stock as security.
- The entire process has been started and monitored by Robinhood.
- Keep in mind that because you own the specific share being lent out, this might happen without your knowledge.
- When shares are out on loan, Robinhood reinvests the collateral so as to earn more investment interest.
- The Borrowers are the retail investors in this whole process.
- If the borrower provides cash as collateral, a portion of the revenue produced from reinvesting is not returned to the borrower but is kept by Robinhood.
So, to start with share lending, Robinhood follows all the above-stated steps. Now in the end it is in your hands to keep or not the share lending or you can say margin investing functionality on your account.