The mobile trading app Robinhood had to resort to financial support from its sponsors once again, as the persistent trading of some of the most volatile stocks on the market forced the company to meet the growing demand for money.
Although I share GameStop (NYSE: GME) took a deep breath today from his frantic bullish run, dropping 20% in the middle of the trading day after the online broker imposed severe stock buying restrictions, Robinhood was still forced to raise $ 2.4 billion to survive the storm.
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Unmatched demand
Stock brokers on Reddit have been in a dispute of wills with hedge funds that massively sell GameStop and other problematic issues such as AMC Entertainment Holdings (NYSE: AMC). In the middle were brokers like Robinhood that facilitate the purchase and sale of shares.
Because of the app’s popularity and with the violent commercial attack that followed as the battle became a populist investment uprising against Wall Street members, Robinhood’s capital requirements with stock-trading clearinghouses skyrocketed.
The platform was forced to raise $ 1 billion last week to meet demands, although CEO Vlad Tenev said at the time that it was a precautionary measure and that Robinhood was not experiencing financial difficulties. It also bought some breathing space by banning all purchases of stocks like GameStop and AMC. Investors could only sell.
The ensuing outcry, however, forced Robinhood to step back, but came up with a plan to limit the amount of shares a user could buy. The most restrictive conditions were imposed on GameStop shares, for which users could only buy one share and five option contracts.
It remains to be seen whether the plan works, because as boxing legend Mike Tyson once remarked: “Everyone has a plan until they get punched in the mouth.”