Retail traders using the Robinhood app have been curbed from trading stocks including videogame retailer GameStop (GME), theatre-chain AMC Entertainment and others, after retail investors took it upon themselves to short squeeze hedge funds and upend the financial system. With Robinhood traders unable to take new options positions, their counterparts in large financial institutions were able to cash out—leading GME to plunge by over 60 per cent.
“In light of current market volatility, we are restricting transactions for certain securities to position closing only, including $AMC and $GME,” Robinhood tweeted.
Outrage at Robinhood’s decision saw the app’s rating on the Play Store similarly drop—displaying at one star. Robinhood traders took to social media to voice their outrage.
One of the most surprising upsets in modern financial history has been the ability of retail traders using the Robinhood app (among others) to drive up the price of the iconic brick-and-mortal videogame store Gamestop, in a bid to prevent hedge funds from shorting the stock and cashing out on its decline in an age of digital downloads.
Gamestop (GME) has seen its value rise by over 700 per cent as investors, led by Reddit users from the subreddit ‘wallstreetbets’, put their money on a company most analysts felt had little future. The outcome was hedge fund Melvin Capital requiring a $2.75 billion bailout from fellow hedge funds, and closing out on its position.
However, as Melvin pulled out of its position, the US Treasury said it was taking note of the situation. Indeed, markets across the world have been reacting to the speculative risk-taking that drove the price so high.
The fallout was not limited to the app traders used to make their moves—the subreddit itself was temporarily made private (which also forced a drop in GME's stock) while the official Discord channel was also shut down for violating the terms of service.
For the retail traders riding the storm, the sentiment was one of sticking it to the big banks (“It seems Occupy Wall Streets had the wrong approach” tweeted WallStreetBets founder Jaime Rogozinski.
Institutional investors, however, allege market manipulation. NASDAQ CEO Adena Friedman on Wednesday told CNBC that the exchange monitors social media for signs of market manipulation, including that of "pump and dump" schemes. While not commenting on whether the Reddit-led market movement qualified as this, Friedman was not alone in keeping an eye on a fraught situation.
The Securities and Exchange Commission (SEC) said it was tracking the “volatility in the options and equities markets” and “working with our fellow regulators to assess the situation."