Robinhood pulled the plug on buying GameStop stock because of a Reddit flash mob.
The popular service Robinhood banned users to open long positions on shares of video game retailer GameStop, telecommunications company Nokia and the world’s largest cinema chain AMC, Bloomberg reported. Users of the service can only sell shares of these companies.
Robinhood has also restricted transactions in the securities of telecommunications company BlackBerry, home improvement chain Bed Bath & Beyond, retailers Express and Naked Brand Group and headphone, headset and microphone manufacturer KOSS Corporation. Robinhood users will no longer be able to buy these papers.
Reddit vs. Wall Street: A brief history of the GameStop stock-buying flash mob
- GameStop was considered a “dying” company in the market, with its shares falling every year. That is why hedge funds actively played down: the worse things went for the store chain, the richer investment funds became, which were betting on further declines;
- The situation took a turn for the worse when Reddit users began buying GameStop stock en masse in order to boost its price and “rub the nose of the Wall Street boomers,” who were actually “drowning” the company. At first they did it as a joke, but then things got serious;
- By the end of January, GameStop stock rose 400%, and hedge funds lost more than $6 billion because of it. The Reddit operation attracted media and public attention: while financiers criticized amateur investors and called for regulation, tens of thousands of people joined in buying shares, which drove GameStop stock even higher;
- Following GameStop, shares of the AMC movie theater chain, Nokia, and other unseen companies rose sharply. Soon brokers began to restrict trading in the companies’ securities, which became part of a Reddit flash mob;
- This has caused sharp criticism online: in the opinion of users, it just proves that ordinary people are forbidden to “beat” Wall Street by all available means.
Robinhood’s decision made social media users very angry. Even after the blocking of the Discord server WallStreetBets, where they discussed the flash mob, as well as reports about the White House interest in their activities, they said: hedge funds are doing everything to get even by any means. And they saw the ban on GameStop stock purchases as just another “sneaky trick” from Wall Street.
The WallStreetBets community expressed a theory: Robinhood intentionally left only the function of selling stocks, so that cautious investors would get rid of them. And since there will be no buyers, the share price will go down. That’s why the message “DON’T SELL” was entrenched in the U.S. Twitter top.
So members of the Wall Street Bets community on Reddit wanted to stop short-sellers who were betting on falling stocks. They were outraged that hedge funds were “sinking” GameStop. The investment firms themselves have already lost billions of dollars as a result of the campaign.