The Volatile Slugfest Of Main Street vs Wall Street Alongside Robinhood

Robinhood Markets, the online trading platform that has lured millions of amateur retail traders inadvertently unleashed havoc in the stock market Thursday, when they abruptly changed sides by siding with the Wall Street elite over the stock frenzy with GameStop.

Shortly before the opening bell rang, Robinhood announced that “in light of recent volatility,” users were informed they could no longer buy shares of GameStop but could still sell them — which would essentially lower the price.

The stocks included AMC, BlackBerry, Best Buy, Express, GameStop, Koss, Naked Brand Group, and Nokia. Traders will only be able to close their positions, Robinhood said.

“We continuously monitor the markets and make changes where necessary,” Robinhood said in a company blog post. “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.”

“We’ll continue to monitor the situation and may make adjustments as needed. To be clear, this was a risk-management decision, and was not made on the direction of the market makers we route to,” Robinhood added.

Robinhood’s blog post did not provide much more information as to the reason for these abrupt restrictions, but touted its finance “educational resources.”

“We’re humbled to have helped many people invest in the markets for the first time,” the company said. “And we’re determined to provide new and experienced investors with the tools and resources to help them invest responsibly for their long-term financial futures. Amid significant market volatility, it’s important as ever that we help customers stay informed.”

Robinhood added that its mission is to “is to democratize finance for all” and that its platform “has helped everyday people, from all backgrounds, shape their financial futures.”

However, furious users complained online that they were unable to transfer funds to their bank account or to other trading platforms that had not restricted the stocks. 

The massive rally for GameStop stock stems from a Reddit group dubbed r/wallstreetbets, where amateur traders convened to share investing ideas and more. Millions of amateur stock traders are collectively are taking on some of Wall Street’s most sophisticated investors by piling around companies that other investors had short stocked, thus pushing stock prices to stratospheric levels. Melvin Capital Management has borne the brunt of losses of nearly $3 billion due to the Reddit horde’s efforts with the soaring stock prices of the hedge fund’s heavily shorted stocks.

The main focus is the stocks of GameStop, the troubled video game retailer. Its stock is up 1,700 percent this month, including Wednesday’s climb of 135 percent. AMC Entertainment rose 300 percent on Wednesday, and BlackBerry is up more than 275 percent this month.

The holds and controversy seem to have created an especially volatile day for GameStop stock on Thursday. Shares of GameStop had soared to more than $500 in early trading Thursday. Trading in the video game retailer was halted repeatedly amid the volatility, with the shares tumbling 27% just before the closing bell.

GameStop stock plunged more than 40% to $193 a share on Thursday. The closing price on Wednesday was approximately $350 a share. Just a few weeks ago, GameStop was trading for less than $18.

Following the trading ban from Robinhood, Interactive Brokers and TD Ameritrade also joined in to prevent retail brokers. GameStop shares whipsawed following the trading ban and closed down 44 percent, even as the Dow rallied 300 points with the day-trading restrictions soothing large investors.

The day-trading phenomenon landed in Washington when the White House press secretary Jen Psaki was asked about the issue. Psaki said U.S. Treasury Secretary Janet Yellen and the Biden administration’s economic team are watching stock-market activity around GameStop and other heavily shorted companies. Federal Reserve Chair Jerome Powell dodged questions on the topic at his regular policy press conference.

House Speaker Nancy Pelosi (D-CA) during her weekly news conference called recent news “interesting,” and said relevant agencies should examine the issue.

Jared Bernstein, a member of President Joe Biden’s Council of Economic Advisers said the U.S. Securities and Exchange Commission is looking into the trading frenzy. But he suggested the ongoing situation was simply a symptom of broader inequality in the U.S. economy.

“For me, and for the president, where this goes is that we’re not going to measure our progress by the stock market,” Bernstein said on CNN. “You’ve got a booming stock market and you’ve got rising poverty. That is at the core of the problem that we are trying to solve, not just in the near term but lastingly.”

In an interview with CNBC, Robinhood CEO Vlad Tenev said the decision to halt trading of GameStop, AMC, and other stocks was “difficult,” but the company did so “to protect the firm and protect our customers.”

GameStop’s stock price collapsed by 62% Thursday, resulting in trading freezes. BlackBerry followed suit and collapsed by 44%. Also, AMC was down 67% and Nokia fell 30%. The Dow Jones Industrial Average bounced back by more than 500 points before noon after heavy losses Wednesday.

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01.29.21 9:48 PM

[…] followed up by asking Psaki about the news that dominated the airwaves regarding the financial app Robinhood restricting retail traders from buying shares of the Gamestop stocks as well as several other short stocks just shortly before […]

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