The past has come back to haunt Robinhood Trading App Thursday, after trading on the app was halted for some stocks.
A tweet, from March 23, 2016, published by Robinhood Trading App simply said, “let the people trade”. We wonder what people they were talking about.
On Thursday, Robinhood announced that it was restricting trades for stocks such as GameStop, AMC, BlackBerry, Nokia, Bed Bath & Beyond, Express Inc., Koss Corporation, and Naked Brand Group.
Robinhood said in a blog post on Thursday morning, just before the stock exchanges opened: “Our mission at Robinhood is to democratize finance for all. We’re proud to have created a platform that has helped everyday people, from all backgrounds, shape their financial futures and invest for the long term. We continuously monitor the markets and make changes where necessary. In light of recent volatility, we are restricting transactions for certain securities to position closing only, including $AAL, $AMC, $BB, $BBY, $CTRM, $EXPR, $GME, $KOSS, $NAKD, $NOK, $SNDL, $TR, and $TRVG. We also raised margin requirements for certain securities.”
Politicians from the left and right are calling for justice for the people.
In a tweet Thursday, U.S. Rep. Alexandria Ocasio-Cortez (AOC) said, “This is unacceptable. We now need to know more about @RobinhoodApp’s decision to block retail investors from purchasing stock while hedge funds are freely able to trade the stock as they see fit. As a member of the Financial Services Cmte, I’d support a hearing if necessary.”
Donald Trump Jr, tweeted, “It took less than a day for big tech, big government and the corporate media to spring into action and begin colluding to protect their hedge fund buddies on Wall Street. This is what a rigged system looks like, folks!”
AOC added, “Inquiries into freezes should not be limited solely to Robinhood. This is a serious matter. Committee investigators should examine any retail services freezing stock purchases in the course of potential investigations – especially those allowing sales, but freezing purchases.”
On Wednesday, our reporter Bryan Taylor explained in detail what has happened with the GameStop stock:
It all started with a plan. There is a subreddit dedicated to amateur stock investors and generally meme-ing the stock market called /r/wallstreetbets (NSFW), who found out that GameStop was being intentionally kept low by hedge funds and institutional investors, where 140% of all the stock was being short-sold.
GameStop was being bet against, assuming the stock would continue to fall and basically causing those involved to benefit from the process. It turns out that Ryan Cohen – yes, the creator of Chewy, the pet food retailer – made a huge investment in the retailer and began lobbying to have Gamestop move the majority of its business online, akin to Amazon.
A post made in the subreddit told these details to several members, creating a ‘Robin Hood’ situation that not only inspired these investors to want to cause these greedy fiends to lose money in the process but perhaps squeeze it out of reach and ride the stock all the way to Valhalla.
These armchair investors began buying into the stock quite heavily. At first, it was single digits, but it ramped up quickly from there and ended up valued at $228 in before-hours trading. Their plan worked, as the short-sellers could no longer short sell the stock, as it would cost them interest based on the value of the stock relative to the bets they were making. This, obviously, isn’t sustainable and the ruse was up.
So in turn, those betting on the losing horse lost billions of dollars. Not learning their lesson the first time and thinking that lightning wouldn’t strike twice, the capitalists began shorting the stock yet again.
But, with an organized effort, the Redditors are mostly just holding onto their stock. This is causing the stock to keep the price at its inflated amount or perhaps pushing it even further onwards and upwards.
Where is the stock going? No one knows. Some are trying to ride the stock as long as they can, hoping to make it rich in the process, while others are dipping out, having done their part. This whole process could be considered market manipulation, but it would be hard to pinpoint individual blame for it. These, as I suggested, are armchair investors doing it for the “lulz.”
This war doesn’t seem to be going anywhere, as those dipping out of the race to the top are suddenly replaced by those buying in.
It’s a battle between fresh investors and established players of the market, and right now, GameStop seems to be benefiting from this, albeit artificial, financial interest.
This absolutely breaks everything taught on how to invest in the stock market, but perhaps the rules are being rewritten by the next generation of investors.