By Aisling Finn on Friday 29 January 2021
Some platforms have stopped the trading of certain stocks altogether, while others have paused new customer accounts and others have experienced technical difficulties thanks to the huge demand.
Following a tip-off on discussion platform Reddit, a number of stocks surged by several hundred percentage points earlier this week, leading some trading platforms to freeze trading of them.
A member of the Reddit threat r/WallStreetBets noticed earlier on this week that Wall Street hedge fund Melvin Capital had taken a huge short position on video game store GameStop ($GME), worth roughly $55m.
Following the discovery, Reddit users following the investment threat urged other people to buy as much GME stock as they could, eventually pushing Melvin Capital to close its position on Wednesday, haemorrhaging nearly $3bn in the process.
Other stocks caught up in the flurry of activity include mobile phone manufacture BlackBerry ($BB), Finnish technology company Nokia ($NOK) and cinema giant AMC Entertainment ($AMC).
At its highest point, GameStop reached levels of nearly $470 per share on Wednesday, a massive step up from the $96 per share on Monday and the $15 per share it was being traded for back in mid-December.
The massive trading volumes caused many interactive brokers to freeze buy orders on the ‘Reddit Stocks’, claiming the market was too volatile.
US digital broker Robinhood appears to have come off the worst out of the situation posted a blog post on Thursday before the market opened. It read: “In light of recent volatility, we are restricting transactions for certain securities to position closing only, including $AMC, $BB, $BBBY, $EXPR, $GME, $KOSS, $NAKD and $NOK. We also raised margin requirements for certain securities.”
“We’re committed to helping our customers navigate this uncertainty. We fundamentally believe that everyone should have access to financial markets,” it went on.
Following Robinhood’s decision, many influential people began piling into the fintech, including founders of cryptocurrency exchange Gemini Tyler and Cameron Winklevoss, entrepreneur and Shark Tank investor Mark Cuban, rapper and Fyre Festival co-founder Ja Rule and US politician Alexandria Ocasio-Cortez.
Other brokers to have closed the door to new GameStop investors include investment app Trading 212 that put out a tweet early Thursday morning outlining its position: “Due to the unprecedented demand, we have temporarily stopped onboarding new clients. Once we process the existing queue, we will be open for new registrations.”
Currently, Trading 212 appears to be the only UK-based trading platform to have put the breaks on the tug of war between Reddit and Wall Street.
Despite the onslaught of new customers and investments, other trading apps seem to be weathering the storm.
A spokesperson for London-based trading app Freetrade said: “We are taking a number of proactive steps to protect our customers, reminding them with in-app messages and other communications about the importance of taking a long-term approach to investing in markets and the particularly acute risks of investing in volatile stocks.”
“We do not currently have any plans to restrict dealing in these stocks, but we will of course keep this under constant review.”
Even though it hasn’t yet stopped the trading of certain stocks, Freetrade did issue a notice to its users stating that some orders may take longer than usual as a result of the frenzied activity.
At the time of writing this article, it seems that the GameStop bubble may have burst with shares in the video game store now sitting at around $273 per share, a drop of over 21 per cent since the market open.
Given the volatility of the current market, and the dogged determination of the ‘Redditor’ investors, it remains to be seen just how long this short squeeze will go one for.