The week of Jan. 25 was unlike anything seen before on Wall Street as Redditors banded together to send heavily shorted stocks like GameStop soaring in a squeeze.
Subreddit r/WallStreetBets, which now has 8 million members and climbing fast, became somewhat of a household name as news of the sudden, meteoric rise of GameStop Corp. (NYSE: GME) spread like wildfire, dominating the news cycle.
GameStop is generally around $18 to $20 a share, but it rocketed as high as $468.59 in intraday trading amid a massive short squeeze. GameStop is a used video game retailer expected to go out of business in the next five to 10 years unless it reinvents itself, as more and more gamers bypass traditional discs to download their games directly.
The sudden piling into GME shares resulted in massive losses for a number of hedge funds, which routinely target the stock for shorting.
The New York Times, CNBC, CNN, Fox Business… WealthPress — name your medium of choice and they are covering it.
“I’ve been doing this for 27 years and I’ve never seen anything quite like it,” WealthPress Head Trader Roger Scott said.
And caught up in the firestorm was popular trading app Robinhood, which outraged users and politicians alike by restricting and outright blocking some trades on 13 stocks like GME, AMC Entertainment Holdings Inc. (NYSE: AMC) and others.
Robinhood was the first broker to offer commission-free trading and has always billed itself as the trading platform for the little guy — just look at the app’s name. Restricting trades caught the attention of some of the biggest names in business, including as Tesla CEO Elon Musk, because it looked as though Robinhood was letting hedge funds win by restricting trades made by retail investors.
Musk — who is no fan of short sellers — has been a vocal supporter of retail traders and WallStreetBets on Twitter. He interviewed Robinhood Co-CEO Vlad Tenev during a Clubhouse session late Sunday, demanding he “spill the beans” on why Robinhood had curbed trades into certain stocks.
“What happened last week? Why can’t people buy the GameStop shares?” Musk asked. “People demand an answer and want to know the details on the truth.”
Tenev said the decision was aimed at protecting the firm and its customers.
“We had no choice in this case,” Tenev told Musk. “We had to conform to our regulatory capital requirements.”
A number of angry WealthPress readers wrote in to vent and share their stories of how the restrictions directly affected their accounts, costing them money.
Reader Matthew N. wrote in and said he lost $3,000.
“I couldn’t sell my shares that I had in AMC,” Neal wrote. “If I would’ve been able to sell, I would have actually profited $1,500 but instead they put blocks from making trades and I had to wait an hour before I could actually place a trade, and by then the price fell enough to cause me to go $3,000 in the hole.
“I have been with Robinhood since November 2019 and for the most part the app has been good, but I totally disagree with them using their power and ability to put blocks on my account so I can’t make money and I lose money. Especially all because the big guys on Wall Street start whining and complaining about losing millions and billions. Yet if I, as an individual investor, were to call Robinhood and cry about losing thousands of dollars, they would most likely laugh in my face and hang up.”
Matthew also said what many others think about big hedge funds losing money on their shorts.
“Personally, I’m happy to see that the big Wall Street guys got burnt these last couple of weeks,” he wrote. “They get a taste of what some of us smaller investors go through, only difference is we can’t pick up the phone or get on the horn and cry to Mommy and Daddy (lol) and have them block trades so they stop losing money.
“And what really makes my blood hot is the last time I checked, I’m a grown man that lives in America… if I choose to be risky with my money and invest into risky companies, then that shall fall on my shoulders. It’s not to be left to a board of directors or a committee to choose whether or not I’m allowed to take that risk or make a certain investment.”
Reader Don B. shared a similar sentiment in that Robinhood’s restrictions go against the American dream of freedom for all.
“Anyone who is a citizen of the United States should be allowed to trade on all stock markets advertised to the public for trading,” he wrote. “Because someone tried to kill a company is no reason to take a public trade possibility away by blocking traders. The stock exchange business is open to the public should by law be forced to open their doors to all traders without restrictions of any kind.
“I was planning to try to trade for the first time but now I’m not sure I want to participate in a sham. I urge the courts to get involved to stop blocking trades on all stock exchanges and all businesses and agencies … associated with the business of stock trading. This incident goes against American values and those blocking should be open to lawsuits from all those in a class action suit.”
Reader Michael B. was thrilled to see WallStreetBets members out-trading the big guys, and he noticed a similar potential short squeeze pattern happening with Naked Brand Group Ltd. (Nasdaq: NAKD) — another stock that ended up restricted by Robinhood.
While he isn’t exactly sure how much he lost, he estimated it was between $8,000 to $12,000 because of the trade restrictions.
“More importantly the three to four days of stress not knowing or controlling my own money,” he wrote. “So much for let the people trade!”
Reader Robert C. said he lost $10,000, though, this error could have been due to the massive flow of traffic, which has been an ongoing issue on heavy trading days. Traffic gets so heavy it’s impossible to make trades at times because the site and app are down.
“I lost $10k this morning because I couldn’t even sell when the market opened. Robinhood log me out and gave some errors.”
Reader Jean S. also ran into issues with the restrictions.
“Yes, I have lost money due to those restrictions which I think are unreasonable,” Jean wrote. “It was the first time in 25 years of owning stocks that could NOT SELL a covered call on my positions. And even though some restrictions have been eased, it is way to lengthy of a process and highly unreasonable for me to execute my trades in a timely manner.”
Reader James C. said he also lost money on a few AMC put options.
“I purchased 3 puts a few days ago on AMC,” he wrote in on Thursday. “I woke up profitable but there was no icon to close it on my app … and when I went to the actual investment, it showed that it is not currently an available stock option. Then after it went down almost 98%, suddenly the icon is available and it states you can close your options but can not purchase anymore.
“I was like what kind of rigged (crap) is this?”
And that’s the feeling of countless other traders… that Robinhood is rigging the game by restricting trades. Reader Arr L. is ready to join the lawsuit.
“Already did change brokers,” he wrote in Friday. “Now where can I join the class-action lawsuit?”
P.S. Did you lose money or miss out on any big wins because of the restrictions? Are you considering changing brokers now? Share your thoughts on the ongoing short squeeze mania with us at firstname.lastname@example.org, and we could feature your story in an upcoming piece.