Brokers took steps to restrict trading of GameStop shares and options and other related names, caught up in a flurry of trading activities that captivated Wall Street’s attention and caused huge losses for hedge funds. In some cases, investors would only be able to sell their positions and not open others.
The pioneer of free stock trading, Robinhood and Interactive Brokers, made efforts to contain the wildly active activity of trading heavily sold names like GameStop, AMC Entertainment, Koss and more on Thursday.
GameStop’s shares initially reversed their course and quickly fell into negative territory as word of the trading restrictions spread. The stock, which traded above $ 500 at one point in the pre-market, was below $ 290 per share shortly after the opening bell.
However, the share of the traditional video game retailer increased by 9%.
“We continuously monitor the markets and make changes when necessary. In light of recent volatility, we are restricting transactions on certain securities only to close positions, including $ AMC, $ BB, $ BBBY, $ EXPR, $ GME, $ KOSS, $ NAKD and $ NOK. We have also increased margin requirements for certain securities, “said Robinhood in a statement.
The increase in margin requirements increases how much money an investor using leverage and derivatives must have in his brokerage account after buying shares.
“As of midday yesterday, (01/27/2021) Interactive Brokers put the options trading AMC, BB, EXPR, GME and KOSS into liquidation only due to the extraordinary volatility of the markets. In addition, the long positions of stocks will require 100% margin and short stock positions will require 300% margin until further notice. We do not believe this situation will decrease until exchanges and regulators stop or put some symbols on sale only. We will continue to monitor market conditions and we can add or remove symbols as can be guaranteed, “Interactive Brokers told CNBC.
GameStop’s stock has risen more than 400% this week and almost 1,750% this year thanks to encouraged retail investors in Reddit’s chat rooms who are trying to get it to Wall Street professionals. Newbies are accumulating names heavily sold by hedge funds, pushing stocks up as institutions rush to cover their losses. AMC Entertainment’s shares rose nearly 300% this week.
The steps taken by Robinhood and Interactive Brokers on Thursday were even more drastic than brokers did earlier in the week. TD Ameritrade and Charles Schwab increased margin requirements on Wednesday.
Robinhood’s customers accessed Twitter to express their outrage over the decision. Robinhood became known for its mission to democratize investment for all. The Silicon Valley startup with more than 13 million users was a pioneer in free trade, forcing the entire brokerage sector to withdraw commissions at the end of 2019.
“Either #Robinhood allows people to trade freely in the market or they will lose millions of users #ToTheMoon #GME #AMC #NAKD,” wrote a Twitter user.
“Robinhood canceled stock orders in #gme #amc #NOK etc … There should be collective action. I thought we had a free market. Wall Street is fine with me losing hundreds of dollars, so wealthy investors may not be alerted about their risks …. #wallstreetbets “, said another user.
Atom Finance told CNBC that 10.96% of its customers on Robinhood traded GameStop shares on Monday, when wild movements took off. The research firm said 11% of Interactive Broker’s customers trade GameStop.
The hedge fund Melvin Capital closed its short position on GameStop on Tuesday after suffering huge losses as a target of the army of retail investors. Citadel and Point72 injected about $ 3 billion into Gabe Plotkin’s hedge fund to strengthen their finances.
The Reddit team is teaming up to regroup certain actions, in what some say is a setback against the establishment of Wall Street.