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Brokers have taken steps to restrict trading of GameStop stocks and options and other related names, which has entered a wave of trading activity that has captured Wall Street’s attention and caused huge losses for hedge funds. In some cases, investors alone would be able to sell their positions and not open new ones.
Free stock trading pioneer Robinhood and Interactive Brokers have both made efforts to curb wild trading activity in heavily shorted names like GameStop, AMC Entertainment, Koss and more on Thursday.
Initially, GameStop’s shares reversed course and quickly slid into negative territory as news of the trading restrictions spread. The stock, which was trading above $ 500 at one point in premarket trading, was below $ 290 a share shortly after the opening bubble.
However, the share of the physical video game seller rose 9% last.
“We continuously monitor the markets and make changes as needed. In light of recent volatility, we limit trades for certain securities to closing positions, including $ AMC, $ BB, $ BBBY, $ EXPR, $ GME, $ KOSS , $ NAKD and $ NOK. We have also increased margin requirements for certain securities, “Robinhood said in a statement.
Increasing margin requirements increases how much money an investor using leverage and derivatives should have in their trading account after a stock purchase.
As of noon (1/27/2021), Interactive Brokers has only liquidated AMC, BB, EXPR, GME and KOSS options due to the extraordinary volatility in the markets. % margin and short stock positions, a margin of 300% is needed until further notice. We think this situation will not go away until the stock exchanges and regulators stop or just liquidate certain symbols. We will continue to monitor market conditions and may add symbols or removal as may be warranted, ”Interactive Brokers told CNBC.
Shares of GameStop are up more than 400% this week and nearly 1,750% this year thanks to encouraged private investors in Reddit chat rooms trying to stick with Wall Street pros. The rookies are piling up in names heavily shorted by hedge funds, pushing stocks up as institutions rush to cover their losses. Shares of AMC Entertainment are up nearly 300% this week.
The steps Robinhood and Interactive Brokers took on Thursday were even more drastic than what the brokers did earlier this week. TD Ameritrade and Charles Schwab raised margin requirements on Wednesday.
Robinhood customers took to Twitter to voice their outrage over the decision. Robinhood has made a name for itself through its mission to democratize investment for all. The Silicon-Valley startup with more than 13 million users pioneered free trading, forcing the entire brokerage industry to drop commissions in late 2019.
“Either #Robinhood allows people to trade freely in the market, or they lose millions of users #ToTheMoon #GME #AMC #NAKD,” wrote a twitterer.
Robinhood canceled stock orders on #gme #amc #NOK etc …. There should be a class action lawsuit. I thought we had a free market. So Wall Street is okay if I lose hundreds of dollars so rich investors are not called out because of their risks … #wallstreetbets, ”said another user.
Atom Finance told CNBC that 10.96% of its clients were trading GameStop stock on Robinhood Monday when the wild moves took off. The research firm said 11% of Interactive Broker’s customers trade GameStop.
Hedge fund Melvin Capital closed its short GameStop position on Tuesday after taking massive losses as a target by the army of private investors. Citadel and Point72 have injected nearly $ 3 billion into Gabe Plotkin’s hedge fund to keep finances up.
The Reddit crew is teaming up to collect certain shares in what some say is a backlash against the Wall Street establishment.