The lulz (and soaring financial gains) of Reddit’s insurgent investor community, WallStreetBets, are on hold Thursday morning as popular stock-trading app Robinhood halted key types of trades of its favourite stocks due to “significant market volatility.”
Robinhood’s decision to halt trading on GameStop and other Reddit “YOLO” stocks is the latest bump in the ongoing saga of WallStreetBets. What started as a community centered around nihilistic meme bets on stocks has since transformed into an army of “retail investors” — everyday people investing in the stock market — marching in lockstep. Their enemy: hedge funds. Many in the WallStreetBets still hold a deep and understandable grudge from seeing these same sorts of firms get bailed out by the federal government when their risky bets went belly up in 2008, and read strong parallels in the current scenario. The Securities and Exchange Commission is now “closely monitoring” the situation.
In a blog post published Thursday morning, Robinhood asserted that it is committed to “democratise finance for all,” but sorry, its users will not be able to buy new shares of GameStop, AMC Entertainment, Nokia, Naked Brand Group, Koss Corporation, Express, BlackBerry, or Bed Bath & Beyond — exactly the stocks of ailing or dusty companies that WallStreetBet traders have pumped money into as part of a war against hedge funds. Robinhood later added American Airlines, Sundial Growers, Tootsie Roll Industries, and Trivago ND to its list of restricted stocks.
We continuously monitor the markets and make changes where necessary. In light of recent volatility, we are restricting transactions for certain securities to position closing only, including $AAL, $AMC, $BB, $BBY, $CTRM, $EXPR, $GME, $KOSS, $NAKD, $NOK, $SNDL, $TR, and $TRVG,” Robinhood wrote. “We also raised margin requirements for certain securities.”
When asked for comment, Robinhood referred Gizmodo to its press release.
On Wednesday, TD Ameritrade announced that it was putting “several restrictions” on securities such as GameStop and AMC. A TD Ameritrade spokesperson told Gizmodo via email Thursday morning that it has not halted the buying and selling of GameStop and other stocks, but only restricted certain higher-risk transactions such as short sales and has increased margin requirements. The spokesperson did not confirm whether these include options contracts, the bet of choice for recent investors. But as of this writing, they appear available for sale on the platform.
“We have been adjusting our requirements for several days as we continued to see trends indicating unusual volume in an unprecedented market environment, which appear to be divorced from traditional market fundamentals,” a spokesperson said via email. “We have made what we believe to be prudent and appropriate decisions to place some limits on certain transactions for certain securities.”
While AMC appeared in Robinhood’s list of top 100 companies and was at the time trading for just over $US14 ($18) a share, searches for GME through the app on Thursday morning turned up zero results. The app’s search function then stopped working entirely. According to a message on the Robinhood app, 56% of its users own GameStop stock.
The New York Stock Exchange also briefly halted trades of GameStop and AMC Entertainment soon after trading began on Thursday. Both have since resumed and their share prices are fluctuating wildly, as they have all week. GameStop, for example, has fluctuated hundreds of dollars Thursday morning alone, with the price largely hovering between roughly $US200 ($261) and $US400 ($522). In December, the stock was trading for around $US4 ($5) a share.
The GameStop rally isn’t just a bold gambit to pay off student loans; WallStreetBets users are out for hedge fund blood. They’ve delighted in watching major hedge fund Melvin Capital suffer as a result of being forced to close its short positions — which effectively means it had bet that GameStop share prices would drop and instead was forced to buy shares of GameStop at a massive loss. An open letter written by a WallStreetBets user ssauronn argues that Melvin and other hedge funds represent the same barons who caused immeasurable suffering in the crash of 2008 and escaped scot-free. Melvin Capital was founded in 2014, but WallStreetBets users loathe the business model. “To Melvin Capital: you stand for everything that I hated during that time,” ssauronn wrote in the letter. “You’re a firm who makes money off of exploiting a company and manipulating markets and media to your advantage.”
In response to the Robinhood trading halt, WallStreetBets users are on a tear, many firing off profanities, some accusing the app of a ploy to drive prices down with panic sell-offs. “Make sure to file a complaint to SEC about Robinhood Market manipulation,” one user wrote.
On Wednesday night, the moderators made the subreddit private for under an hour night, explaining that due to the growth in the subreddit’s size it became difficult to moderate posts and comments. “We wrote software to do most of the moderation for us but that software isn’t allowed to read the Reddit new feed fast enough and submit responses, and the admins haven’t given us special access despite asking for it,” moderator zjz wrote. Discord also banned the group’s server over hate speech violations. “You know as well as I do that if you gather 250k people in one spot someone is going to say something that makes you look bad,” zjz wrote, “apparently if someone can say a bad word with weird unicode icelandic characters and someone can screenshot it you don’t get to hang out with your friends anymore.”
While WallStreetBets’s efforts to screw over hedge funds has drawn cheers from the likes of Elon Musk and Mark Cuban, the establishment financial world is in chaos as it reckons with what CNBC’s Jim Cramer described as a new “paradigm” for Wall Street. With GameStop, AMC, and other stocks now arguably overvalued, the world now waits to see whether this anti-establishment investing tactic will revolutionise trading — or whether a bunch of little guys get stuck holding the bag.