GameStop Stock, Reddit and Robinhood: What You Need to Know

Stock of video game retailers

GameStop

GME 67.87%

started in 2021 at $ 18.84. On Friday, its stock traded above $ 340. And it’s not the only surprising stock to see big gains. Below we follow the latest developments in GameStop stock market mania.

Amateur investors, a rising force in the markets, flexed their collective trading muscles this week, sending seemingly invaluable corporate stocks to new highs. Investors have cheered each other via social media forums such as Reddit’s WallStreetBets to buy shares and options in video game retailer GameStop, cinema company

AMC Entertainment Holdings

AMC 53.65%

and other.

When the shares soared, some day traders and others were affected hedge funds with short investments against the companies suffered losses. This dynamic created a short-term pressure where heavy share purchases force short players to buy shares in the shares to limit their losses, which increases the share price even more.

As small investors continued to buy more shares on Thursday, the mobile trading app Robinhood and several other brokers limited access to popular shares with these traders. Traders could choose to hold their shares or sell them. Small investors were furious at the brokers. GameStop and AMC shares fell in response to the restrictions.

Robinhood Markets Inc. reopened trading early on Friday for shares and options, and Share prices in GameStop and AMC rose again.

Why did Robinhood and others block trading in these stocks?

Robinhood and other brokers, including WeBull Financial LLC, E * Trade Financial Corp. and

Interactive Brokers Group Inc.,

limited access to volatile stock trading and alternatives to meets increased deposit requirements from clearing houses.

Depository Trust & Clearing Corp. operates the main clearing center for US stock trading and helps process and settle transactions. Due to a delay between when investors buy or sell a stock and when their cash is actually exchanged for securities, brokerages like Robinhood must have deposit accounts at the clearing houses to show that they are good value for money. In risky times, clearing houses ask brokers to put up more of their own cash to cover transactions and insure against losses. When Robinhood and others experienced a sharp increase in trading volume in recent days, the DTCC called for a cash increase.

In an interview on Thursday, Robinhood’s CEO Vlad Tenev explained that Robinhood saw an unparalleled increase in its deposit needs. By limiting investors’ ability to buy shares in GameStop and 12 other companies, the online trading platforms sought to limit future increases in these requirements.

Robinhood customers were not happy with the restrictions. A group of individual investors filed a class action complaint against the company on Thursday and claimed that it “deprived its customers of the opportunity to use its service” and potential profits from trading without “legitimate reason”.

Until Friday, Robinhood loosened the stock restrictions, only to tighten them later in the day. Users may purchase a maximum of one share and five option contracts for GameStop.

Wall Street is up in arms over GameStop shares this week, after members of Reddit’s popular WallStreetBets forum encouraged bets on the video game retailer. WSJ explains how options trading drives the action and what is at stake.

How did WallStreetBets build so much momentum on Reddit?

Reddit’s WallStreetBets forum promotes a devil-can-care investment strategy. The community was created in 2012 by a consultant who now lives in Mexico City, actively avoids the convention, adopts offensive descriptions of its users, also called “autistics”, their investment decisions and their resulting gains and losses. The community has a heavy meme culture and the heavy-in-the-cheek celebration of major investments that have gone wrong. At WallStreetBets, the financial world is fun and entertaining whether you win or lose.

It is also the place where amateurs go after Wall Street power players and share their joy when the pros suffer steep losses. The the amateur trading world exploded during the Covid-19 pandemic due to volatile markets and isolation from lockdowns, which are affected by low-cost trading and the proliferation of available mobile trading apps. Federal Reserve intervention in the markets in March rewarded amateur traders who “bought the dip” and bought stocks at low prices and benefited when the latter rose. Discussions on social media have the potential to go viral and send stock quotes.

In the middle of many new GameStop activities on the forum, the moderators temporarily took the forum private on Wednesday, citing difficulties in keeping track of all posts and comments, but then reopened it an hour later. The Discord chat service on Wednesday banned WallStreetBet’s server, which users used to talk to in real time, for violating community guidelines.

While WallStreetBets participants are by no means representative of millions of amateur traders, now six million strong societies exclaims himself as place for the serious investor.

What does Wall Street say?

Several high-flying hedge funds with short books, or investments in companies, double-digit losses suffer in the volatile market, including Melvin Capital Management, Maplelane Capital, Candlestick Capital Management, D1 Capital Partners and billionaire investor Steven A. Cohen’s Point72 Asset Management.

Online brokers have struggled with technical problems and service disruptions in the middle of the frenetic trade.

Some amateur investors on social media platforms have attacked Wall Street professionals online, lobbying insults and threats against Reddit,

Twitter,

Disagreement and

Facebook.

Short sellers are no strangers to criticism, but social media users share personal information, hack social accounts and send text messages to family members.

Card salesman Andrew Left, a target for Internet attacks, said he would do so Stop sending short sales reports. “When we started Citron, it would be against the establishment. We have actually become the establishment, said Mr. Left in a video.

Some professional investors has questioned the tactics of amateur traders who work en masse and whether publishing online is stock manipulation.

What do politicians say?

Politicians from both sides at a time criticized brokers for the trade restrictions they introduced this week, while others demanded investigations and more rules.

Rope. Alexandria Ocasio-Cortez (D., NY) shouted Robinhood in a tweet to block “retail investors from buying stocks while hedge funds are free to trade the stock as they see fit.”

She continued: “As a member of Financial Services [Committee], I would support a hearing if needed. In a recent tweet, she clarified that: “Committee investigators should investigate all retail services that freeze inventory purchases during potential investigations – especially those that allow sales but freeze purchases.”

Senator Ted Cruz

(R., Texas) tweeted that he agreed with the rep. Ocasio-Cortez.

Sen Sherrod Brown

(D., Ohio), the incoming chairman of the Senate Banking Committee, said he plans to hold a hearing for the committee to focus on how the stock market works.

Senator Pat Toomey

(R., Pa.), A top Republican on the banking panel, told Capitol Hill reporters he was disturbed “that a platform would suddenly freeze out retail investors who are simply exercising their right to make a purchase.”

Senator Elizabeth Warren

(D., Mass.) Called on the Securities and Exchange Commission and other agencies to intensify the rules, noting that the professional investors hurting the recent short press in hot stocks have been exploiting individuals for several years.

Rope. Maxine Waters

(D., California), chair of the House Financial Services Committee, said she would hold a hearing “to examine recent activity around GameStop (GME) stocks and other affected stocks, focusing on card sales, online trading platforms, gamification and their systemic impact on our capital markets and retail investors. “

White House said officials including Finance Minister Janet Yellen are keeping an eye on the frenetic trading activity.

On the regulatory side this week, the SEC released two statements that it monitors stock market volatility. IN its latest on Friday, the SEC also said it would “review actions taken by regulated entities that could disadvantage investors or otherwise unnecessarily hamper their ability to trade certain securities.”

What comes next?

It’s someone’s guess what’s next in this ‘nerds against Wall Street’ feud.

Starting Friday, Robinhood eased trade restrictions for clients on 13 volatile stocks after raising more than $ 1 billion from their own existing investors. As a result, GameStop and AMC bounced back from Thursday’s declines.

Several hedge funds have suffered steep losses and withdrew the exposure to the stock market on both the long and short side of their portfolios.

GameStop warehouse and GameStop company tell two very different stories. GameStop, the company remains “a retail chain with more than 5,000 stores struggling to stay relevant in a digital transition business”, which Hearing columnist Dan Gallagher explains. While the company has recently made some smart moves, it is still expected to report double-digit revenue declines for the second year in a row. Meanwhile, the stock has increased more than 25 times in the last three weeks.

And GameStop is not alone. From AMC to

Bed Bath & Beyond

BBBY 5.02%

to Blackberry, several stocks are seeing their stock prices rise, contrary to what their corporate performance would suggest.

Copyright © 2020 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8

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