Brokers such as free stock-trading pioneer Robinhood are restricting trades in GameStop and other names engaged in a squall of activity that has alarmed Wall Street and caused big losses for hedge fund short sellers.
In some cases, investors can only sell their stock and options positions but not open new ones.
Rookie retail investors in Reddit chat rooms are trying to stick it to Wall Street pros, CNBC reported. They are piling into names heavily shorted by hedge funds and squeezing stocks higher as institutions rush to cover their losses in what some say is pushback against the Wall Street establishment.
After successfully squeezing hedge fund managers out of GameStop, empowered Reddit investors this week set their sights on other highly shorted companies.
Shares of GameStop skyrocketed more than 400 percent this week and 1,750 percent this year thanks to their activity. Shares of AMC Entertainment are up nearly 300 percent this week. American Airlines rose as much as 33 percent today in the short-squeeze rally.
Robinhood pioneered free trading, forcing the entire brokerage industry to drop commissions in 2019, CNBC reported. The Silicon-Valley startup made a name for itself promising to democratize investing for everyone and more than 13 million users believed it.
“We continuously monitor the markets and make changes where necessary. In light of recent volatility, we are restricting transactions for certain securities to position closing only, including $AMC, $BB, $BBBY, $EXPR, $GME, $KOSS, $NAKD and $NOK. We also raised margin requirements for certain securities,” Robinhood said in a statement.
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David Portnoy, internet celebrity blogger and founder of the blog Barstool Sports, tweeted his outrage over Robinhood’s move. “Robinhood’s ‘entire business model is to cater to the exact people they are now trying to fuck with and scare into selling. They will never recover from this”, Portnoy predicted.
“Either @RobinhoodApp allows free trading or it’s the end of Robinhood. Period.” Portnoy added, “And it turns out @RobinhoodApp is the biggest frauds of them all. ‘Democratizing finance for all’ except when we manipulate the market cause too many ordinary people are getting rich.”
Portnoy continued, “Somebody is going to have to explain to me in what world [Robinhood] and others literally trying to force a crash by closing the open market is fair? They should all be in jail.”
Another Twitter user called for a class-action lawsuit against Robinhood. “Robinhood canceled stock orders on #gme #amc #NOK etc…. There should be a class action lawsuit. I thought we had a free market. So Wall Street is OK with me losing hundreds of dollars, so that rich investors can’t be called out on their risks…. #wallstreetbets”.
TD Ameritrade imposed unprecedented restrictions on trading in GME, AMC and other huge short squeezes on Wednesday and Charles Schwab raised margin requirements.
Interactive Brokers also put option trading into liquidation for some companies and blamed market volatility. “As of midday yesterday, (1/27/2021) Interactive Brokers has put AMC, BB, EXPR, GME, and KOSS option trading into liquidation only due to the extraordinary volatility in the markets. In addition, long stock positions will require 100% margin and short stock positions will require 300% margin until further notice,” IB told CNBC. “We do not believe this situation will subside until the exchanges and regulators halt or put certain symbols into liquidation only. We will continue to monitor market conditions and may add or remove symbols as may be warranted.”