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REUTERS: GameStop shares plunged early Thursday (January 28) as trading platforms including Robinhood and Interactive Brokers restricted transactions at the video game retailer alongside AMC Entertainment and other stocks that soared this week by a Social media-fueled trading frenzy that rocked the stock markets. .
GameStop, the video game chain whose 1,700% rally has been at the heart of last week’s fight, lost half its value in early trading. The stock initially rallied, then fell back, as American Airlines joined the growing list of stocks that were making stellar gains as small traders and major Wall Street institutions expanded their battle.
On the Reddit WallStreetBets thread, where calls to buy stocks have helped fuel the extraordinary moves, some of its more than 4 million members reported that the Robinhood trading platform was now preventing investors from buying GameStop and other volatile stocks.
Robinhood cited “recent volatility” in a statement on its website. He said restricted stocks also included BlackBerry, Koss and Express. Interactive Brokers, another online trading platform, also said that it was restricting trading in those stocks. “We don’t think this situation will go away until exchanges and regulators stop or just put certain symbols into liquidation,” said Interactive Brokers.
On Twitter, many observers condemned the decision to remove certain stocks, arguing that retail platforms were trying to protect Wall Street’s interests at Main Street’s expense.
“Robin Hood: A Parable About Stealing From The Rich To Give To The Poor. Robinhood: An App About Protecting The Rich From Being Squeezed By The Poor,” Tweeted Jake Chervinsky, a lawyer for fintech company Compound.
However, the universe of actions driven by social networks expanded. Shares of American Airlines soared 16%.
“GameStop 2.0! I think part of this is related to short sellers and those who are looking for some of these short-term opportunities to push stocks,” said Paul Nolte, portfolio manager at Kingsview Asset Management in Chicago.
The ‘Reddit crowd’, with its use of call options and coordinated buying, has had a direct impact on the broader stock market. A basket of stocks traded primarily by hedge funds has fallen 2.5 percent year-to-date, while a tracking basket of retail favorites is up 13.5 percent, according to data from Goldman Sachs.
GameStop briefly became the largest stock in the small-cap Russell 2000 index, according to Zerohedge.
Dramatic jumps in the share price of companies like GameStop, BlackBerry and AMC drew more calls for regulatory scrutiny.
“When it comes to tracking short-term interests, the US markets are probably the most transparent, but there is always room for improvement,” former SEC Chairman Jay Clayton told CNBC.
Shares in the silver industry also caught the attention of traders. First Majestic Silver of Canada paused briefly in New York after shares rose more than 30 percent. The company said it was not aware of any undisclosed materials or information. Miner Fortuna Silver Mines was up 20 percent, while Fresnillo Plc, which is listed in London, was up 10 percent.
Sharply shortened stocks were also active in Australia and Europe.
SHORT GRIP
On Wednesday, the short contraction, where a rising stock price forces traders to abandon loss-making “short” bets, drove a 2% drop in the New York S&P 500 as investors sold other assets to cover your losses. US equity markets rallied more than 1 percent in early trading Thursday.
Short sellers have an estimated $ 71 billion in losses from their positions in US companies this year, data from analytics firm Ortex showed. As of Wednesday, there were losing short positions in more than 5,000 US companies.
In a Reddit discussion, thousands of participants responded “We love these actions” to a post calling for more GameStop purchases and featuring retailers as Iron Man against a hedge fund Thanos in a nod to the superhero movie “Avengers. : Endgame “.
The war started last week when Citron Capital’s hedge fund short seller Andrew Left bet against GameStop and encountered a barrage of retailers betting the other way. He said Wednesday that he had abandoned the bet.
Long ridiculed by market professionals as “dumb money,” the group of traders, some of them ex-bankers working for themselves, has grown into an increasingly powerful force worth 20 percent of the money. Stock orders last year, data from Swiss bank UBS showed.
The steady rise in equity markets over the past decade, fueled by a steady stream of newly created money from major central banks, has also made it less risky to bet on rising stocks.
The US Federal Reserve kept those taps firmly on at its last meeting on Wednesday.
This week’s turmoil caught the attention of the White House, with President Joe Biden’s economic team, including Treasury Secretary Janet Yellen, on her first full day on the job Wednesday, “monitoring the situation.”
Massachusetts state regulator William Galvin asked the NYSE to suspend GameStop trading for 30 days to allow a cooling off period.
“The prospect of intervention here is clearly high, but this will simply galvanize the community (WallStreetBets) as it will simply bring home the sense of inequality in financial markets,” said Chris Weston, head of research at Pepperstone broker in Melbourne.
“It’s okay to support zombie companies through Fed actions, but if retail follows a path that grossly distorts asset prices by targeting short sellers, then this shuts down.”
