Robinhood raised $ 1 billion from investors overnight to support his balance sheet, as the brokerage app was created to ease restrictions on trading certain volatile stocks, according to CNBC’s Andrew Ross Sorkin.
The money raised went beyond the $ 500 million that the broker accessed through credit lines to ensure that he had the capital necessary to continue allowing his clients to trade in stocks like GameStop and AMC Entertainment.
Robinhood CEO Vlad Tenev told CNBC that taking advantage of credit lines was a proactive step and denied it was because of a liquidity problem.
“By using our credit lines, which we do all the time as part of normal day-to-day operations, we obtain more capital that we can deposit with clearing houses and this will ideally allow us to allow more investments with less restrictions,” he said Tenev Sorkin in an interview with CNBC on Thursday night.
Shares in popular retail trade names rose in Friday’s premarket, in anticipation of Robinhood easing some restrictions. GameStop shares rose 80% and AMC Entertainment shares jumped 50% in the pre-market.
In the midst of a wild week of speculative retail trading, Robinhood on Thursday limited trading to 13 shares, including GameStop and AMC Entertainment. Robinhood only allowed clients to sell positions, not open new ones, in certain securities, increased margin requirements, and even said that it would automatically close some positions if the client ran the risk of not having the necessary guarantees.
The company then said, after Thursday’s close, that it would allow limited purchases of restricted securities on Friday.
Robinhood experienced an unprecedented high volume of trading this week, with retail traders reading Reddit trying to acquire certain highly sold shares. Robinhood, who needs to deposit money in a clearinghouse based on trading volume, said he restricted trading because the company was unable to meet the deposit requirements it was anticipating. The requirements increase when volatility increases, in the event that a large proportion of investors lose in an options trade.
The $ 1 billion raised came from previous venture capitalists at Robinhood and the credit lines are from banks like JPMorgan and Goldman Sachs.
In short selling, investors borrow shares in a company in the expectation that the stock price will fall, making a net profit when the short seller is expected to cover the shares at maturity.
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