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Brokers took steps to restrict trading in GameStop shares and options and other related names caught in a wave of trading activity that has captivated Wall Street attention and caused huge losses for hedge funds. In some cases, investors could only sell their positions and not open new ones.
The pioneer of free stock trading, Robinhood and Interactive Brokers, made efforts to curb wild trading activity on very short names like GameStop, AMC Entertainment, Koss and many more on Thursday.
Initially, GameStop shares reversed course and quickly slipped into negative territory as trade restrictions extended. The shares, which traded above $ 500 at some point in pre-market trading, were below $ 290 per share shortly after the opening bell.
However, the proportion of brick and mortar video game retailers last increased by 9%.
“We continually track markets and make changes as needed. In light of recent volatility, we restrict transactions to certain securities only at the close of the position, including $ AMC, $ BB, $ BBBY, $ EXPR, $ GME, $ “KOSS, $ NAKD and $ NOK. We also increased margin requirements for certain securities,” Robinhood said in a statement.
Increasing margin requirements increases the amount of money an investor who uses leverage and derivatives should have in their brokerage account after buying a stock.
“As of noon yesterday, (27/01/2021) Interactive Brokers has liquidated the trading of options AMC, BB, EXPR, GME and KOSS only due to the extraordinary volatility of the markets. In addition, long stock positions will require 100% margin and short stock positions will require 300% margin until further notice.We do not believe this situation will decrease until stock exchanges and regulators only stop or put certain symbols in liquidation. We will continue to monitor market conditions and we can add or remove symbols as may be justified, ”Interactive Brokers told CNBC.
GameStop shares have risen more than 400% this week and nearly 1,750% this year, thanks to investors encouraged in Reddit chat rooms trying to join Wall Street professionals. Rookies pile up in sharply reduced names by hedge funds, which increases stocks as institutions rush to cover their losses. Shares of AMC Entertainment have risen nearly 300% this week.
The steps taken by Robinhood and Interactive Brokers on Thursday were even more drastic than those taken by brokers earlier in the week. TD Ameritrade and Charles Schwab raised margin requirements Wednesday.
Robinhood customers turned to Twitter to express their outrage at the decision. Robinhood has made a name for itself through its mission to democratize investment for all. The Silicon-Valley start-up with more than 13 million users pioneered free trade, forcing the entire brokerage industry to leave commissions by the end of 2019.
“Any #Robinhood allows people to trade free in the market or they will lose millions of #ToTheMoon #GME #AMC #NAKD users,” one twitter user wrote.
“Robinhood canceled stock orders on #gme #amc #NOK, etc. There should be a class action. I thought we had a free market. So Wall Street is fine with the loss of hundreds of dollars, so wealthy investors can Not describe their risks to you … #wallstreetbets, ”said another user.
Atom Finance told CNBC that 10.96% of its Robinhood customers traded GameStop shares on Monday when the wild moves came out. The research firm said 11% of Interactive Broker customers trade with GameStop.
Hedge fund Melvin Capital closed its short position on GameStop on Tuesday after taking huge losses as a target of the army of retail investors. Citadel and Point72 have donated nearly $ 3 billion to Gabe Plotkin’s hedge fund to bolster their finances.
The Reddit crew is banding together to rally certain actions in what some say as a setback against the Wall Street establishment.