FORT WAYNE, Ind. (WANE) – The online trading platform Robinhood restricted trading Thursday on GameStop and other stocks that have soared from a steep uptick in buying by smaller investors.
GameStop stock has rocketed from below $20 earlier this month to more than $400. This comes after investors on social media began buying stock after big institutions placed market bets that the stock would fall.
“You’re seeing discussions about shutting down some of these message boards which kind of comes into free speech issues, you’re also seeing brokers essentially cohort-ing, it seems like, with hedge funds in order to save their bodies or protect their order flow or protect their fees,” said Greg Reynolds, President of Reynolds Wealth Management.
While stocks are skyrocketing, they are forcing the big players to cover their bets by buying the stocks. This in turn increases the stock even further. Robinhood placed restrictions to stop users from buying new stock in GameStop, but it was a move that Reynolds said stomps out the little guy.
“They’re restricting trading they’re changing the rules, they’re changing the rules. Today, like these rules didn’t exist yesterday. These rules are now changing today and it’s, it appears that they’re doing that, in an effort to squeeze the little guy in to make sure that these billionaires and these hedge fund guys are protected in the process that they survive they don’t go out of business, they don’t lose more money, and they’re doing it at the expense of the little guy,” Reynolds said.
Reynolds said this is happening because people are seeing their time stuck at home as a way to try to make money on the stock market using their stimulus checks.
“In other cases are saying, hey, this is an opportunity for me to try and make a difference for my life for my family my financial future. So they’ve really tried to take hold in some cases of their own financial success, and they’ve selected some of these online brokers and so forth to help them with that processing their trades and so forth,” Reynolds said.
“The idea that a group of people began communicating and working together for a common goal is not unusual we have seen this type of collaboration before it’s happened in many times over the last 100 plus years in market behavior,” Reynolds said. “We’ve seen short squeezes, we’ve seen runs on the market. So the fact that a lot of people are moving in one direction, isn’t new. What’s different this time is that they’re able to easily communicate to large groups of people, and then they’re all able to react or trade.”
The concern now is that this type of stock increase will undermine the market confidence, especially as brokers restrict trading.
“They’re [restricting trading] in an effort to protect these hedge funds,” Reynolds said. “They’re trying to give them more room they’re trying to give them a little breathing space they’re trying to give them some time to get out of these positions before they lose more money.”
While Robinhood may see their actions as a way to help the stock market, many politicians are demanding answers.