© Reuters. A GameStop store can be seen in New York
By Sagarika Jaisinghani and Shriya Ramakrishnan
(Reuters) – GameStop (NYSE 🙂 shares fell early Thursday as trading platforms such as Robinhood and Interactive Brokers (NASDAQ 🙂 started trading in the video game dealer along with AMC Entertainment (NYSE 🙂 and other stocks, which rose in strength this week , limited social media-fueled trading frenzy that rocked stock markets.
GameStop, the video game chain whose 1,700% rally last week was the focus of the battle, lost half of its value in early trading. The stock had rallied and then pulled back as American Airlines (NASDAQ 🙂 joined the growing list of stocks that made outstanding gains as small traders and large Wall Street institutions stepped up their battle.
On the Reddit thread WallStreetBets, where calls to buy stocks have contributed to the extraordinary moves, some of its 4 million plus members reported that the Robinhood trading platform was now preventing investors from buying GameStop and other volatile stocks.
Robinhood cited "recent volatility" in a statement on its website. (https: // Restricted stocks were said to include BlackBerry (NYSE :), Koss, and Express. Interactive Brokers, another online trading platform, also said it was restricting trading in these stocks. "We don't believe that this situation will subside until the exchanges and regulators stop or just put certain symbols in liquidation, "said Interactive Brokers.
On Twitter, many observers opposed the decision to remove certain stocks, arguing the retail platforms were trying to protect Wall Street's interests at Main Street's expense.
"Robin Hood: a parable about stealing from the rich to give to the poor. Robinhood: an app about protecting the rich from being pressured by the poor," tweeted Jake Chervinsky, attorney for the fintech firm Compound.
However, the universe of social media stocks has expanded. American Airlines shares rose 16%.
"GameStop 2.0! I think some of this has to do with short sellers and those exploring some of these short-term opportunities to nudge stocks," said Paul Nolte, portfolio manager at Kingsview Asset Management in Chicago.
The & # 39; Reddit crowd & # 39; has had a direct impact on the entire stock market with their use of call options and coordinated buying. A basket of stocks primarily traded by hedge funds is down 2.5% so far this year, while a basket that tracks retail favorites is up 13.5%, according to data from Goldman Sachs (NYSE 🙂 showed.
GameStop briefly became the largest stock in the small cap index, according to Zerohedge.
The dramatic price increases from companies like GameStop, BlackBerry Ltd and AMC led to more demands for regulatory oversight.
"When it comes to monitoring short-term interest, US markets are probably the most transparent, but there is always room for improvement," former SEC chairman Jay Clayton told CNBC.
Silver industry stocks also caught traders' attention. Canada First majestic silver (NYSE 🙂 was temporarily halted in New York after shares rose more than 30%. The company stated that it has no material or undisclosed information. Miner Fortuna Silver Mines (NYSE 🙂 rose 20% while it was listed in London Fresnillo Plc (LON 🙂 jumped up to 10%.
Sharply shortened stocks were also active in Australia and Europe.
Graphic: Retail frenzy, reflation trading drive up smallcap stocks – https://fingfx.thomsonreuters.com/gfx/mkt/nmopaooozpa/Pasted%20image%201611834967884.png
On Wednesday, the short squeeze – where a rising stock price forces traders to give up losing "short" bets that it will go down – resulted in a 2% decline in New York as investors sold other assets to cover their losses cover up. US stock markets rebounded more than 1% early Thursday. ()
Short sellers expect an estimated $ 71 billion in losses this year from their positions in US companies, data from analytics firm Ortex showed. As of Wednesday, there were loss-making short positions in more than 5,000 US companies.
In a Reddit discussion, thousands of attendees responded with "We love this stock" to a post that called for more purchases from GameStop and occupied retailers than Iron Man versus a hedge fund Thanos, alluding to the superhero movie "Avengers: Endgame".
The war started last week when Citron Capital's hedge fund short seller Andrew Left bet against GameStop and encountered a spate of retailers betting the other way. He said on Wednesday that he had given up the bet.
Long ridiculed by market professionals as "stupid money", the group of traders, some of whom are ex-bankers working for themselves, has grown over the past year into an increasingly powerful force worth 20% of stock orders, like data the Swiss bank UBS showed.
Graphic: Hedge Funds Trying to Close Short Positions, Reduce Losses – https://fingfx.thomsonreuters.com/gfx/buzz/xlbvgyyybvq/Pasted%20image%201611834123278.png
The steady uptrend in stock markets over the past decade, fueled by the steady influx of newly created money from major central banks, has also made it less risky to bet on rising stocks.
The US Federal Reserve opened these taps at its last meeting on Wednesday.
This week's turmoil caught the White House's attention as President Joe Biden's economic team, including Treasury Secretary Janet Yellen on her first full day on Wednesday, "monitored the situation."
William Galvin, the regulator of the US state of Massachusetts, has asked the NYSE to suspend trading in GameStop for 30 days to allow a cooling off period.
"The prospect of intervention here is clearly high, but it will only shake the community (WallStreetBets) as it only creates a feeling of inequality in the financial markets," said Chris Weston, chief research officer at broker Pepperstone in Melbourne.
"It's okay to have Fed action backing zombie companies, but if retailers embark on a path that greatly distorts asset prices by targeting short sellers, it will stop."