The gaming community — and not just — is in outrage over the latest development of the GameStop ($GME) Wall Street war case. As of Jan. 28, stock trading app Robinhood has blocked users from purchasing additional GameStop stocks, as well as stock from several other companies, including Nokia ($NOK) and AMC Entertainment ($AMC), which has caused the previous record-high position of the stock prices to plummet.
But what exactly happened with GameStop? We've reported about it before, but let's summarize once again:
- A large amount of GameStop stocks were "shorted", which is essentially borrowing the stocks from their owner, selling them, counting on their price to drop, and then re-buying them on the lower price for a profit before having to return them to the owner. If they can't, those shorting the stocks stand to lose a lot of money
- A large group of redditors on /r/Wallstreetbets, believing GameStop stocks still have value (and perhaps wanting to teach hedge funds a lesson), bought out the stocks and then held them. With that, the stock price started going up.
- At the start of the year, GameStop stocks sat at under $20. On Jan. 27, following the collective buy-out and holding from the community, it reached a record-high of $469.42 — a 2,250% increase.
- This means that those who've shorted the stock can no longer buy it back for a profit — the very opposite, in fact.
This is where stock trading app Robinhood comes in. The company wrote in a blog Thursday that it is restricting transactions for certain stocks, "$AAL, $AMC, $BB, $BBBY, $CTRM, $EXPR, $GME, $KOSS, $NAKD, $NOK, $SNDL, $TR, and $TRVG." These currently do not appear anywhere when searched for on Robinhood. Other apps have since followed suit.
The results of this restriction has been a rapid decline of GameStop's stocks. Earlier today, the price had fallen to $126, and while it recovered some of its value later, it's likely it will continue to drop. This would likely incentivize those holding the stock to sell it, which would mean the price would drop even further, allowing those who shorted the stock in the first place to recover it more easily.
AMC, BlackBerry, Nokia and other companies' stocks blocked by Robinhood and the likes have also seen a similar collapse. And as one might expect, the community is not happy about it. Many have called out Robinhood for going against their self-proclaimed mission "to democratize finance for all", accusing the app for serving the interests of the hedge funds instead of the "everyday people" they claim to be there for. FaZe Clan owner Richard "Banks" Bengston called out Robinhood to be "absolute scum", a sentiment echoed by popular caster Dan "Frodan" Chou. Dota 2 player and analyst Peter "ppd" Dager, Tempo Storm owner Andrey "Reynad" Yanyuk, among others, have also joined the march against Wall Street.
According to FOX Business reporter Lydia Moynihan, a class action complaint has been filed against Robinhood in the souther district of New York.
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