Robinhood Restricts Trading on GameStop, AMC, and Other “Short Squeeze” Stocks
Over the past few days, Wall Street observers have been gripped by a battle of sorts playing out between short-seller hedge funds and retail investors. This tug of war has been most prominently displayed in stocks for video game retailer GameStop and movie theatre chain AMC, with both stocks seeing three and even four-figure percentage gains. Now, as a result of this volatility and the risk that comes with it, one major stock trading app has announced it’s limiting transactions on several “short squeeze” stock targets.
This morning, Robinhood announced that it would be making some changes in the wake of recent market events. Currently, users cannot buy shares of GameStop or AMC via the app. Instead, only position closing trades of $GME and $AMC are allowed at this time. In addition to GameStop and AMC, Robinhood has also limited transactions on stocks for Blackberry ($BB), Bed Bath and Beyond ($BBBW), Express ($EXPR), Koss ($KOSS), Naked Brand Group ($NAKD), and Nokia ($NOK). The app also states they’ve raised margin requirements for certain securities.
Whether as a direct result of Robinhood’s decision or not, GameStop stock has fallen from highs of $483 to lows of near $113. However, continued rallies have once again tried to push the price higher. As of this writing, $GME is currently trading between $190 and $270 per share.
With Robinhood and others suspending trades on select stocks, some traders have also been promoting alternatives. Among them, the Cash App seemingly still allows customers to purchase shares in many of these companies — except for GameStop, incidentally. Meanwhile, other apps including WeBull and Public came forward saying they were also forced to halt trades on certain stocks due to decisions made by their clearinghouse partners, but both have since reenabled trades.
In their blog post announcing the changes, Robinhood wrote, “We’re committed to helping our customers navigate this uncertainty. We fundamentally believe that everyone should have access to financial markets. We’re humbled to have helped many people invest in the markets for the first time. 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.” The company also pointed to their available educational materials.
Given the regulatory scrutiny Robinhood has already raised in recent years, it’s understandable that the platform would want to cover itself from this event, which is gaining political attention. Additionally, since Robinhood does pass trade orders through other firms (a fact that was at the heart of a recent $65 million settlement between the startup and the SEC regarding disclosures), it’s possible that the app is protecting itself in the event that those partners decline to fulfill those orders. At the same time, it seems that customers aren’t the only ones who are upset with Robinhood’s decision, meaning that this attempt to dodge controversy could well backfire. In any case, it will definitely be interesting to see where this short squeeze rollercoaster turns next. For more of my thoughts on Robinhood checkout my video: