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Brokers have taken action to restrict trading in stocks and options GameStop and other related names caught in a wave of trading activity that has captured Wall Street’s attention and caused heavy losses for hedge funds . In some cases, only investors could sell their positions and not open new ones.
Free stock trading pioneer Robinhood and Interactive Brokers both made efforts to curb wild trading activity on heavily courted names like GameStop, AMC Entertainment, Koss and more on Thursday.
Initially, GameStop shares reversed course and quickly slipped into negative territory as news of the trade restrictions spread. The stock, which traded above $ 500 at one point in pre-market trading, was below $ 290 per share shortly after the opening bell.
However, the share of the physical video game retailer rose 9% for the last time.
“We are constantly monitoring the markets and making changes if necessary. In light of recent volatility, we are restricting trading for certain securities to closing positions only, including $ AMC, $ BB, $ BBBY, $ EXPR, $ GME, $ KOSS, $ NAKD and $ NOK. We have also increased the margin requirements for certain securities, ”Robinhood said in a statement.
Increasing margin requirements increases the amount of money an investor using leverage and derivatives must have in their brokerage account after a stock purchase.
“As of noon yesterday (01/27/2021) Interactive Brokers liquidated the AMC, BB, EXPR, GME and KOSS options only due to the extraordinary volatility in the markets. In addition, long positions will require 100 Percent of Margin and short positions in equities will require a 300% margin until further notice. We do not believe this situation will reverse until the exchanges and regulators stop or put certain symbols into liquidation only. We will continue. to monitor market conditions and may add or remove symbols as may be warranted, ”Interactive Brokers told CNBC.
GameStop shares have climbed over 400% this week and nearly 1,750% this year thanks to emboldened retail investors in Reddit chat rooms trying to stick with the pros on Wall Street. Rookies are cramming in names heavily courted by hedge funds, pushing stocks higher as institutions rush to cover their losses. AMC Entertainment shares are up almost 300% this week.
The actions taken by Robinhood and Interactive Brokers on Thursday were even more drastic than what brokers did earlier in the week. TD Ameritrade and Charles Schwab raised margin requirements on Wednesday.
Robinhood clients have taken to Twitter to express their outrage at the move. Robinhood has made a name for itself through its mission to democratize investing for all. The Silicon-Valley startup with more than 13 million users pioneered free trading, forcing the entire brokerage industry to give up its commissions at the end of 2019.
“Either #Robinhood allows people to trade freely in the marketplace or they will lose millions of users #ToTheMoon #GME #AMC #NAKD,” wrote one Twitter user.
“Robinhood canceled the stock market 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 with me losing hundreds of dollars. dollars, so wealthy investors don’t get exposed on their risks …. #wallstreetbets, ”another user said.
Atom Finance told CNBC that 10.96% of its clients on Robinhood traded GameStop shares on Monday when the wild moves took off. The research firm said 11% of Interactive Broker’s clients trade GameStop.
Hedge fund Melvin Capital closed its short position on GameStop on Tuesday after suffering huge losses as a target for the army of retail investors. Citadel and Point72 injected nearly $ 3 billion into Gabe Plotkin’s hedge fund to consolidate its finances.
The Reddit team is coming together to rally some action in what some say is a push against the Wall Street establishment.
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