NATIONWIDE — Wall Street is in a frenzy.
Online brokerage firms Robinhood, TD Ameritrade, Webull, and other trading platforms on Thursday morning halted the sale of GameStop, AMC, American Airlines, Bed Bath & Beyond, and other stocks after "significant market volatility" involving these stocks and more.
“In light of recent volatility, we are restricting transactions for certain securities to position closing only, including $AAL, $AMC, $BB, $BBBY, $CTRM, $EXPR, $GME, $KOSS, $NAKD, $NOK, $SNDL, $TR and $TRVG,” a Robinhood statement said on the site.
Webull had a similar statement on Twitter:
"Due to extreme market volatility in the symbols AMC, GME, and KOSS, our clearing firm will no longer be able to support clearance on these symbols. As a result, Webull is forced to sell all transactions in these symbols to liquidate only."
The move to restrict new trades of these stocks and others by online brokerage firms comes after a coordinated surge of market buying of these stocks by users on Reddit and other social media platforms as part of an effort to try to send a message against big hedge funds on Wall Street and play their game. With the ease and popularity of trading stocks online, the GameStop fiasco highlights the influence of social media and could change how Wall Street approaches certain stocks.
"It is an amazing use of social media for individual traders in both stocks and options to target stocks heavily sold short," David Saito-Chung, deputy markets editor at Investor's Business Daily, said to Spectrum News.
If you haven't been paying much attention the past couple of weeks, Wall Street has been in an uproar. Amateur traders are boosting unheralded stocks and sending its prices skyrocketing, while big guns like hedge funds are biting their nails.
So what is going on? Let's break it down.
Wall Street Bets – The r/wallstreetbets subreddit is a dedicated forum for stock investing and Wall Street news on the social media platform Reddit. These are mostly anonymous amateur day traders who shoot the breeze and share news and comment on posts about stocks they like and don't like.
Hedge funds – These are professional money managers that aggressively invest high-net-worth individuals' and institutional investors' money on stocks, real estate, and other assets. The goal of hedge funds is to maximize investors' returns and minimize risk. Melvin Capital and Citron are the big hedge funds involved in this matter.
Stocks – GameStop or GME is a company that specializes in selling new and used physical video games, consoles, and other pop culture items and collectibles at their 5,500 brick and mortar stores worldwide. We'll use this company as an example since this is the stock that started the frenzy.
Short-sale – A tactic used by investors to bet on a company's stock that they believe will decline. The idea is an investor "borrow shares" of a certain company's stock from their broker, sells the shares, and then buys it back at a lower price. The short seller will pocket the difference.
Robinhood – A brokerage firm that operates a commission free online stock trading platform.
GameStop, similar to many companies that have brick-and-mortar locations, struggled during the coronavirus pandemic. Local shutdown orders meant less foot traffic into their stores and led to the company having to close several stores and lay off staff during the pandemic. Couple that with the advent and popularity of buying digital game downloads, which brought in $12 billion in December, GameStop was in trouble.
According to its 2019 annual report, GameStop lost $464 million last year.
During the height of the pandemic, GameStop stock was selling for about $5 a share. The stock picked up at the beginning of the new year, trading at $17.
Hedge funds such as Melvin Capital and Citron began pouring millions of dollars into GameStop stock as part of a short-selling effort to drive the stock price down, so they could buy it back later at a lower price and profit—a typical strategy on Wall Street.
But Wall Street Bet Redditors were bullish on GameStop. Hordes of people began buying the stock at a low price, held on to it, and led a coordinated effort to continue buying shares, thus driving up the price.
David versus Goliath, an "Us vs. Them" herd mentality, began playing out in the stock market.
As mainstream news and social media began picking up the story, people—from amateur traders, Elon Musk to Mark Cuban—began rallying around the Wall Street Bets group. This led to GameStop stock skyrocketing within the past week. They were, in Wall Street parlance, performing a short squeeze on these hedge funds. Sending the stock upward would force these funds to buy the shares at a higher price.
The market volatility regarding GameStop and other stocks that the Wall Street Bet group identified, such as AMC, Blackberry, and Bed Bath & Beyond, led to Robinhood, Webull, and other online stock trading channels to halt the purchase of those stocks.
On Wednesday, Melvin Capital and Citron, and other unidentified hedge funds that were short-selling GameStop shares, waved the white flag. The hedge funds lost big, as in billions of dollars, and needed a loan from other companies to cover their losses. The short-sellers lost a reported $5 billion, with the bulk coming from GameStop stocks, according to reports.
As of noon Thursday, Robinhood continued to restrict the buying of more GameStop and other stocks that have been targeted by social media user shares. Webull began opening up sales of GameStop again by the afternoon.
GameStop opened Thursday with a high of $482, and by 12 p.m. PST, the stock price had fallen 36% to $118. It continues to fall. Some analysts believe the stock will eventually revert to its normal valuation pricing of about $12 a share.
The inability to buy stocks on Robinhood, however, has led to a revolt by the Wall Street Bets group.
Some call on President Joe Biden and the SEC to investigate why and how Robinhood and other online trading platforms could restrict a stock's sale in an open market environment.
They called it "market manipulation."
One lawsuit has already been filed in New York. Others are sure to follow.