Why Brokers Had To Restrict GameStop Stock Trading

Robinhood, E * Trade, Interactive Brokers, and others limited trading in GameStop and other names last week after GameStop climbed to $ 483 during the day – a 10,000% increase since August for a historically brick-and-mortar company with declining sales and a product now downloadable. The brokers came in for quick, intense – and misguided – criticism.

As with everything else, social media took on an extraordinarily complex situation involving technical aspects of financial markets, unclear legal standards, and public and private sector actors with valid but different agendas, and created a simple moral story with the online brokers as that Evil The Empire annihilates brave rebels like « u / -_ Han-Yolo_- » to protect the Jabba the Hutts hedge fund that shorted GameStop. Redditors showered Robinhood with vitriol and one-star ratings.

Opportunists from politics and social media stepped in. Alexandria Ocasio-Cortez, a MP, said that GameStop’s trade restrictions were « unacceptable » and called for an investigation. Rep. Rashida Tlaib of the Financial Services Committee accused Robinhood of « stealing millions of dollars from its users ». Senator Ted Cruz took to Twitter to « fully agree » with AOC: « Let the people act. » Elon Musk « absolutely » agreed that Robinhood should be investigated and called for short selling to be banned as a « fraud ». Dave Portnoy, Barstool Sports Founder and Frozen Pizza Reviewer, told Robinhood executives, « You deserve to be behind bars. »

It must be worrying when most of the internet wants your head in one basket, but Robinhood and the other brokers are in a no-win situation. Brokers are financially liable to the « clearinghouses » that trade and settle US stocks and options, regardless of whether or not customers can pay for their lost deals (so those clearinghouses, on the other hand, can pay the winners when the Trade settles a day or two later).

When clients trade, especially with margins, they use the broker’s money to play. Imagine a customer buys 100 shares of GameStop for $ 400 per share, uses $ 20,000 of their own money, and borrows $ 20,000 from Robinhood. If the stock falls from $ 400 to $ 120 (as it did on Jan 28), the client’s position may be sold for $ 12,000 due to the margin violation, so Robinhood will attempt to take an unsecured debt of $ 8,000 from u / Thicc_Ladies_PM_Me to move in. Good luck. Multiply that by hundreds or thousands of similar customers. Options trading is worse because the leverage is much greater.

Has GameStop stopped trading?

Has GameStop stopped trading?

As a result, Grapevine, Texas-based company GameStop went offline several times on January 27th and 28th, but each interruption lasted only a few minutes. … When equity volatility is high, capital requirements increase.

Why is GameStop so high?

GameStop’s shares are up more than 1,000% since the start of the year. Analysts say the stock’s staggering spike is largely due to brief pressures fueled by a number of individual investors who coordinate their buying efforts on sites like Reddit and Twitter (NYSE: TWTR).

How much money was lost on GameStop?

Short sellers lost around $ 19 billion at GameStop in 2021, new estimates suggest. Reddit Day Traders have propelled the stock more than 1,500% this year.

Why is GameStop so active?

The GameStop surge made headlines because it was driven by retail investors – individuals who buy and sell stocks for their own gains as opposed to professional investors who work on Wall Street – on the r / WallStreetBets (WSB) subreddit, a community of 2.9 million, is powered. strong, which describes members as « degenerate ». …

Why did Robinhood restrict GameStop?

Why did Robinhood restrict GameStop?

The company said its original decision to restrict trading in stocks was based on its capital commitments and clearinghouse deposits, which fluctuate due to volatility in the markets.

Robinhood going to be sued?

New York (CNN Business) A Robinhood customer filed a class action lawsuit against the stock trading app Thursday after the company banned traders from buying GameStop stock promoted by WallStreetBets, a popular Reddit group for investors .

Did Robinhood Forced GameStop Sale?

Robinhood shocked investors Thursday morning when purchases of GameStop, AMC Entertainment, BlackBerry and certain other volatile stocks were abruptly curtailed. … Customers who do not already own GameStop can only buy one share.

Is there a class action lawsuit against Robinhood?

Robinhood customers file class action lawsuit after the popular app stopped GameStop stock trading. Robinhood customers are banding together to file a class action lawsuit against the popular app after they stopped trading GameStop stock.

Which brokers have stopped GME trading?

Which brokers have stopped GME trading?

On Wednesday, TD Ameritrade announced that trading in GameStop GME (-28.11%) and AMC Entertainment Holdings AMC (+ 5.51%) along with other names has been restricted in the past few days due to a three-digit percentage price increase from these companies.

Why are they stopping trading stocks?

Trading interruptions are typically carried out in anticipation of a news announcement to correct an order imbalance due to a technical defect or regulatory concern. Interruptions can also be triggered by heavy downward movements in so-called circuit breakers or curbs.

Will GameStop stop?

Trading with GameStop (ticker: GME) has been temporarily stopped several times in the past few days under SEC rules, which interrupt trading when stocks make large moves.

Why do brokers block GameStop?

« Brokers have been forced to take action because they would be in the line of fire if an undemanding investor loses money. » he said. The increase in the use of stock options fueled by individual investors makes some brokers nervous and explains why some have taken steps to restrict trading.

Why did Robinhood block Nokia?

Robinhood announced that it is restricting transactions for AMC, GameStop, BlackBerry, Nokia and others due to « significant market volatility ». In a blog post, the company said that users can close positions on certain stocks but cannot buy more stocks.

Who stopped trading with GameStop?

Robinhood and Webull were two of the brokers who stopped buying GameStop stock on Thursday, along with stocks of other companies including AMC and Koss Corporation. The brokerage firms allowed those who currently owned shares in those stocks to sell, but no one was able to open a new position.

Why Brokers Had To Restrict GameStop Stock Trading
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