Mobile trading app Robinhood once again had to turn to the source of financial backing from its backers as continued trading in some of the most volatile stocks in the market forced the company to meet increased cash demands.
While shares of GameStop (NYSE: GME) took a breather today from their frenzied run higher, fell 20% in afternoon trading after online brokerage severely restricted stock buying, Robinhood was still forced to raise $ 2.4 billion to weather the storm .
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Stock traders on Reddit have participated in a will battle with hedge funds that massively shorted GameStop and other troubled issues, such as AMC Entertainment Holdings (NYSE: AMC). In the center were brokerage houses such as Robinhood that facilitate buying and selling of the stock.
Due to the popularity of the app, and with the trading attack that followed when the fight turned into a populist investment revolt against Wall Street insiders, Robinhood’s capital requirements with stock trading clearinghouses skyrocketed.
The platform had to raise $ 1 billion last week to meet the demands, although CEO Vlad Tenev said at the time that it was a precautionary measure and that Robinhood had no financial difficulties. It also bought some breathing room by banning all purchases of stocks like GameStop and AMC. Investors could only sell.
However, the hue and cry that followed forced Robinhood to back down, but it came up with a plan to limit the amount of stock a user could buy. The most restrictive terms were imposed on GameStop shares, which allowed users to purchase only one share and five options contracts.
Whether the plan works remains to be seen, because as boxing legend Mike Tyson once remarked, “Everyone has a plan until they get punched in the mouth.”