On Feb. 2, GameStop’s (GME) skyrocketed share investments plummeted after Interactive Brokers restricted shareholder trading.
GME, which was up over 1,700% and worth over $400 per share during the pinnacle of the stock market coup, has dropped down to a lower 52%. The stock has surpassed more than 92.2 million shares.
Over the past few months, a message board on the Reddit forum called WallStreetBets incited the stock’s trading hysteria that began in late January.
“The value trade thesis and the idea of forming an unofficial cooperative to swarm the stock coalesced into what would eventually push the shares to the promised land: a chance to inflict pain against Wall Street. For a change,” said Brandon Kochkodin in a Bloomberg Wealth article.
This catapulting of niche stock investments that were once only invested in by bearish traders has ended up costing Wall Street billions.
In simple terms, copious amounts of independent investors bought shares in the New York Stock Exchange (NYSE)’s GME stock to force short sellers (also known as hedge funds) to drive prices “to the moon” while getting rich in the process.
Sarah O’Brian, in a CNBC finance article, explains it this way: “Basically, short selling involves borrowing shares of a stock at a certain price, selling them and then counting on being able to buy at a lower price when it comes time to pay back the borrowed shares.”
Retail investors were “short squeezing” stock market short sellers by purchasing shares and driving the price up when Hedge Funds predicted GameStop would fail and even put millions of dollars on the notion.
This disruption of “buy low, sell high” strategies left short sellers scrambling to cover losses resulting in them purchasing more shares, boosting the price.
The power struggle caused the Interactive Brokers company to implement restrictions on share purchases with certain stocks such as GME, AMC Entertainment (AMC), Express (EXPR) and Nokia (NOK).
Another retail brokerage account that restricted trading, the app Robinhood, known for commission-free stock, option and cryptocurrency trading, was under fire and driven down to a one-star review after shutting down trading on the GME stock, contradicting the rules of a free market economy.
“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, $BBBY, $CTRM, $EXPR, $GME, $KOSS, $NAKD, $NOK, $SNDL, $TR and $TRVG. We also raised margin requirements for certain securities,” said Robinhood in a statement.
Private investors were infuriated because of their inability to freely trade stocks as they wished.
Tension between the working-class people and big-money investors has been brewing for years in the finance industry. This ordeal has exemplified the grapple between amateur investors abstaining from any illegal activity versus sophisticated and high-end business conglomerates practicing after-hours trading where the integrity of those particular strategies are regularly challenged.
This conflict has recently grasped the attention of politicians and the regulatory agency of Washington. Brokerage restrictions and the overall event will be addressed in a hearing on Feb. 18 regarding the limitations of stock market freedom on shareholders.
