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Organized hobby investors let Gamestop’s stock price soar 2,000 percent via the reddit forum “WallStreetBets.” There is also speculation with other newspapers such as BlackBerry, Nokia or AMC Cinema.
The share price of computer games retailer Gamestop was still just below $ 18 (15 euros) in early January. But what happened next, even seasoned financial professionals have yet to experience: In the past two weeks, Gamestop’s rate increased by a total of about 2,000 percent. Driven by amateur investors on the online platform Reddit, who organized on the “WallStreetBets” forum, the price rose to seemingly endless heights.
With concerted buyouts, retail investors forced hedge funds to settle their bets on a drop in the share price. Which then pushed stocks up and cost the fund billions.
Scott Galloway, a professor at New York University’s college of economics, chooses a drastic comparison: New online trading platforms, such as online broker Robinhood, mostly used by Reddit users, are the latest crack dealers. who are constantly interested in Clients. trigger the release of the happiness hormone dopamine. They do everything in their power to constantly push for new deals with in-game items: “Confetti is falling to celebrate transactions. The broker app looks like a colorful Candy Crush interface.”
Even with the speculation on the Gamestop stock, it initially seemed like a big party – but when on Thursday (January 28) up to $ 500 was offered for a Gamestop stock for a short time, Robinhood pulled the string and blocked more purchases. of the application. . The price sometimes collapsed to $ 126 and eventually closed at $ 194. Newspaper trading was already significantly disrupted the previous days, because not only Robinhood, but also various other online brokers from E-Trade and TD Ameritrade to the Platforms from the great asset managers Charles Schwab and Fidelity no longer had the huge crowd they could handle. .
Coordinated price speculation
German online broker Trade Republic also posted a stop sign on Thursday night. Shares of Gamestop, AMC Entertainment Holding, BlackBerry and Nokia, as well as companies Express Inc. and Bed Bath & Beyond Inc are “apparently currently the subject of violent and coordinated price speculation,” the Berlin-based neo-broker wrote. to his clients. . “Due to the risks associated with you, we are not accepting new orders to buy these shares at this time. Meanwhile, Trade Republic lifted the purchase ban.
Robinhood had announced the night before after a storm of investor outrage that it would relax trade restrictions on overheated shares of Gamestop and Co. On Friday, the price of the computer game retailer rose again, sometimes in previous trading. to commercialization in the United States by about 100 percent. But it was far from the highest level.
Gamestop itself is deep in crisis, and in the meantime, it has already been canceled. The video game branch doesn’t have great prospects anyway and is suffering from the pandemic. The fact that hobbyist traders chose the company as a “meme action” was, until the hype couldn’t be stopped, was felt by many as a joke.
Frustration with online merchants
In the United States, Robinhood’s decision to allow only the sale of Gamestop shares sparked a storm of outrage. On Thursday, even top American politicians got involved in the conflict. The future chairman of the US Senate banking committee, Sherrod Brown, announced a hearing “on the current state of the stock market.” It’s time for the SEC and Congress to make the economy work for everyone, not just Wall Street. “People on Wall Street only care about the rules when it hurts,” Brown’s statement said.
The frustration was even greater among investors who were frustrated by Robinhood’s restrictions on its earnings path. “They take money from the poor and give it to the rich,” said Charlie Hancox of the activist platform Inveez, for example. Like other users, he accused Robinhood boss Vlad Tenev of stabbing them in the back in the power struggle with hedge funds.
Frustrated hedge funds
In contrast to the flash mob of Reddit users, professional investors had speculated on falling prices. These “short sellers” sell the relevant stock first, although they do not yet own it. At a later time, when the “perfect” price falls, the paper is bought in order to fulfill the offer. Therefore, these short sellers are betting to stock up on cheaper paper on the return date and then collect the difference as profit.
However, the Reddit community relied on the price hike. This led to a veritable battle of forces with the hedge funds, which then ran into great financial difficulties due to the organized mass buying of shares and the associated price spike and sometimes had to write off billions of dollars in losses.
A billion dollar game
Tenev denied in an interview with Bloomberg TV that his company was being pressured by Wall Street players. Robinhood itself did not have enough free capital to secure purchases of the shares traded with the necessary deposits. According to a New York Times report, Robinhood had to raise more than $ 1 billion from its short-term investors to maintain its liquidity. Stopping the purchase was a technical and operational decision, “Tenev said.
Those affected do not want to be satisfied with this answer. Two frustrated Robinhood clients filed lawsuits against the neo broker in New York and Chicago.
After the ups and downs of Gamestop’s stock contributed to a shock to financial markets, regulators will have to scrutinize Robinhood’s business model anyway, also because the Menlo Park, California company is struggling to go out of business. bag. Using the app, trading stocks, but also significantly riskier papers, has become as easy as ordering a pizza online. And there are not even fees. Consumer advocates accuse the company of making complicated financial products available to inexperienced customers, who then risk not only losing their savings, but also running into debt.
Exchange expert Dirk Müller warned on Friday on ntv.de: “What happens at Gamestop reveals that exchange is no longer a playing field, but a battlefield.”
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