If you’ve ever moved money into a retail brokerage account, you’ve probably noticed that you can often trade some of the funds before they actually arrive.
Robinhood calls it Instant Deposits, which starts at $1,000 without a subscription, or $5,000 if you pay for Gold, while Webull and Moomoo offer their own versions under the same “instant buying power” theme.
Effectively, it’s a free, short-term loan extended to anyone with an account.
As we covered in our last post on Abusing Microcaps at Scale, if you wave free money in the air, it’s inevitable that someone will find a way to take as much of it as they can.
Not surprisingly, a group in New York saw this free money and ended up using 600+ brokerage accounts to trade options among themselves, leading to a haul of more than $2 million over 4 years.
Of course, the way they did it was extremely illegal, but how they picked their options and opened so many accounts is rather fascinating, and I think you’ll agree.
So today, we’re going to reverse-engineer exactly how it worked: what they traded and why those contracts were perfect for it, how much they made on every account they burned through, and why trying this today might be a bit harder than you’d think.
This is the third post of our new series, Sketchy Trades, which we introduced here, and is dedicated to showcasing the “darker side” of quantitative trading.
The problem with free money
As you might already know, while you can trade the instant deposit from your broker, you can’t immediately withdraw it.
Until the ACH bank transfer actually clears, brokers won’t let you withdraw the credited cash, and if a transfer bounces, the credit gets pulled right back out of your balance. So, if you deposit money you don’t have and the trade goes your way, the profit will be stuck in an account that’s about to get frozen.
Naturally, this begs the question:
How exactly do you get the money out of an account that never had any money in it?
Interestingly, the answer is that you lose it on purpose, to an account you control at a different broker.