NEW YORK (KRON/AP) — The online trading platform Robinhood is moving to restrict trading in GameStop and other stocks that have soared recently due to rabid buying by smaller investors.
GameStop stock has rocketed from below $20 earlier this month to more than $400 Thursday as a volunteer army of investors on social media challenged big institutions who had placed market bets that the stock would fall.
Among the restrictions announced by Robinhood on Thursday, investors would only be able to sell their positions and not open new ones in some cases, and Robinhood will try to slow the amount of trading using borrowed money.
This has essentially been called a David versus Goalith situation, amateur investors taking on the elite of Wall Street by banding together on social media but trading app Robinhood keeping users from making deals today has turned into outrage and lawsuits.
Users of the investing app Robinhood are revolting after the company stops them from buying certain stocks.
A small group of protestors gathered outside the company’s Menlo Park headquarters Thursday as thousands of others went after them online.
The trading platform was only allowing users to sell stocks in GameStop and a handful of other companies but not to buy them.
Robinhood’s CEO addressing the decision to restrict the trading Thursday.
“We’re really in unprecedented times and in order to protect the firm and protect our customers, we had to limited buying in these stocks,” Vlad Tenev said.
But users are not seeing it that way.
The company is accused of shutting out its customers and siding with big billion-dollar investment firms.
Besides GameStop, Robinhood said trading in stocks such as AMC Entertainment, Bed Bath & Beyond, Blackberry, Nokia, Express Inc., Koss Corp. and Naked Brand Group would be affected by the new restrictions.
“What had happened was that Wall Street was betting so hard that Gamestop was gonna fall so bad that these people online realized there was a way to exploit this bet,” Ian Sherr said.
Some big institutions such as Citron Research and Melvin Capital had placed bets that GameStop shares would fall as the company tries to transform itself from a bricks and mortar retailer to a seller of online video games.
But smaller investors rallied to the stock. By sending the stock soaring higher, they forced the big players to cover their bets by buying the stock, increasing the stock even further.
Robinhood’s finances have also come into question but the company says it does not take commissions on trades.
The action to stop users from trading will likely soon lead to regulatory and legal battles, Washington lawmakers are also weighing in.
“Congress is now starting to look into this AOC and Ted Cruz, two people on very different sides of the aisle agree that something needs to be done,” Sherr said.
The Robinhood app is allowing for some limited buys of shares in GameStop and other companies beginning again on Friday.
The company’s CEO says they’ll continue to monitor the situation and make adjustments as needed.
Robinhood’s stated goal is to “democratize” investing and to bring more regular people into investing. But the company has run afoul of regulators who say the company downplays the risks of trading. Robinhood says it is making moves to better educate users of its platform about those risks.