Brokerages limit trading in GameStop, sparking outcry
Robinhood and other retail brokerages are taking steps to tamp down the speculative frenzy surrounding companies such as GameStop, but the actions only sparked more volatility in the market and an outcry from users of the platforms and some members of Congress who say small investors are being treated unfairly.
GameStop stock has rocketed from below $20 earlier this month to close around $350 Wednesday as a volunteer army of investors on social media challenged big institutions who had placed market bets that the stock would fall.
The action was even wilder Thursday: The stock swung between $112 and $483 before closing down 43.2% at $197.44.
Robinhood said Thursday that investors would only be able to sell their positions and not open new ones in some cases.
Robinhood will also require investors to put up more of their own money for certain trades instead of using borrowed funds.
Besides GameStop, Robinhood said trading in stocks such as AMC Entertainment, Bed Bath & Beyond, Blackberry, Nokia, Express Inc., Koss Corp., American Airlines, Tootsie Roll, Trivago and Naked Brand Group would be affected by the new restrictions.
After the market closed, Robinhood said it would allow limited buying of those securities starting Friday.
Interactive Brokers also limited options trading in AMC, BlackBerry, Express, GameStop and Koss on Thursday. Clients could close out positions, but not buy more options, a move the company said was due to extraordinary volatility in the markets. It also tightened margin requirements indefinitely on “short stock positions.”
The frenzy surrounding shares of GameStop, AMC and others has drawn in an influx of investors with little or no experience trading stocks. That poses a challenge for brokerages that cater to small investors, said Andy Nybo, managing director at Burton-Taylor International Consulting.
“The brokers were forced to take action because they would be in the firing line if an unsophisticated investor loses money,” he said.