• redtea@lemmygrad.ml
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    1 year ago

    This sounds like great advice to me.

    There are probably unexpected legal uncertainties, too. Like is the app a broker, trustee, agent? What are the implications? Does/When does title pass? Who’s responsable for insurance? Etc, etc. I’m sure these kinds of apps have some ‘straightforward’ way of dealing with all this. Straightforward until a trader with $1m+ is caught up in bankruptcy case, owing $2m+ to others and everyone with a possible interest starts competing to say the stocks are theirs. That won’t really be an issue for small-time traders, because unless they get a lawyer, they’re likely at the mercy of whether the app says is the law.

    • Ronin_5@lemmygrad.ml
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      1 year ago

      To answer your questions, the app is a broker. The app buys from a kind of holdings firm run by banks, and holds it in your stead. So you never actually own the stock. The transfer from banks to RH takes a couple days. There’s material that details the structure of electronic brokers like these but it’s been a while since I reviewed it.

      There is no insurance so you’ve got to purchase it yourself. Generally speaking you are responsible for your losses. Your best bet is to diversify and size your positions to manage risk.

      Also, you can open an account that doesn’t allow you to use leverage to trade. So you can’t lose more than you invest. If you want to open a TFSA then this is mandatory.

      The value of stocks is disconnected from the book value of the company. So if there is a bankruptcy case and the stock is delisted, then their price just goes to zero. For example, look at the price history of Sears. The writing was on the wall for at least a year before it was delisted.

      However you’re right in that the app will do shady things like prevent you from only buying a stock, but allow selling, as was the case for GME. Or if you’ve bought YNDX, then it would be violating sanctions to hold it. But they’ve also forbid trading so you can’t sell it, so you keep getting emails telling you that you’re holding forbidden securities and that you need to sell but you can’t. Etc.