GameStop – the shopping mall-based video game network – was slowly dying for years, until Robinhood investors showed up to try to save it. Over the course of five frantic trading days last week, GameStop’s shares grew five times in price – at one point on Friday, they rose more than Seven-fold – bringing some long-term gains for GameStop investors to more than 1,625% in January alone.
Urged by social media posters on Twitter, Reddit and TikTok, and attracted by ads from the brokerage commission based on smartphone apps, many new investors joined Robinhood and used their free trading platform to buy GameStop options and shares. Some of these investors quickly switched to other heavily sold shares, AMC Entertainment, Blackberry and Nokia between them.
Image source: Getty Images.
One by one, short positions were squeezed, stock prices skyrocketed and investors got richer … until, suddenly, gains stopped. Some major brokers, including Robinhood, have ceased trading with several highly volatile stocks. The abruptness of the change left investors confused and upset, not knowing why this was happening and unaware of the complex internal workings of the brokers that could have caused this.
And so the complaint began:
@ oneilthomas97 There is a class war going on in the middle of a pandemonium #stocks #amc #gme #nok #nakd #robinhood #stocktock
♬ original sound-Lubalin
@mercyojo Hold people, hold on! #stockmarket #stockstobuy #robinhood #fypthis
Originais original sounds for slomo_bro!
On Monday, the company had pledged to limit trading to just eight specific stocks:
But this was an agreement that Robinhood users had never negotiated or agreed to – and they did not accept it well.
@ claire.lolz 🤦♀️ #capitalism #stocks #robinhood #comedy
Put Rasputin (version 7 “) -Boney M.
@robinhoodkid I was a little irritated on that third point. #robinhood #ceo #GME #AMC #gamestop #girlstalkstocks #moneytok #fintok #stocktok #viral #fyp
♬ Who is She-Qveen Herby
In short, in the absence of a quick and clear explanation of federal regulations that could have required change and anything about Robinhood’s (and other) liquidity problems, the company’s investor base concluded that Robinhood’s management was simply allied hedge fund operators. It was, he thought, to limit trade in order to protect the “billions” of hedge funds from “normal people”.
(In fact, in a lawsuit filed last Thursday, offended Robinhood traders claimed exactly the following: “Robinhood’s actions were done purposefully and consciously to manipulate the market for the benefit of people and financial institutions that were not customers Robinhood. “)
The company is now facing some significant legal headaches and potential liabilities. After increasing his user base from 3 million to 13 million last year alone (according to NBC), Robinhood is at risk of wasting all that growth and losing the faith of his customers. Management insists that its loyalty to “ordinary investors” remains unchanged, that it never wanted to prevent people from buying the shares in question and only limited trading because of “deposit requirements mandated by the clearinghouse”.
But some Robinhood users are not buying. They want an apology from the CEO, a clearer explanation of what went wrong – and a promise to fix it. Otherwise, many of them can just leave Robinhood – forever.