[valuearb]

There is a two day closing period for stock sales. During that period the exchange needs colateral to ensure when the transaction closes it will be paid for.

Typically this collateral is small, like 3% because most stocks aren’t volatile and buyers almost always pay up.

But when a stock gets incredibly volatile, there is a risk that buyers of $480 shares may refuse to pay when the price is $90 two days later. Especially when the buyers are a bunch of new retail investors who just opened accounts.

You could buy GME from most brokers because they didn’t have the GME volume Robinhood had, and they had more collateral, so the 100% collateral requirements for GME were manageable.

[scatters]

And the inverse; if you buy at $200 and the stock is at $400 two days later there's a risk that the person you were buying it from has disappeared (maybe they were a short seller and went bust; maybe they got seller's remorse). So RH has to reserve not just the $200 you paid for it, but also another $200 to buy the share on the open market when the counterparty fails to deliver. That's why collateral requirements are based on volatility, not momentum.