A day after shares of U.S. retailer GameStop rose 135% -- a wild upswing spurred by an online army of investors on a mission to challenge the dominance of Wall Street -- Robinhood, the stock-trading app at the center of it all, clamped down. Almost immediately, GameStop's shares plunged, falling 75% in 90 minutes. The limits on trading by Robinhood and other online brokerages, put in place as fears of market instability grew more widespread, set off a furious outcry among small investors. They claimed that the very apps that had democratized trading -- Robinhood in particular -- were now doing the bidding of Wall Street. Small groups of investors protested outside the New York Stock Exchange and at the Menlo Park, California, headquarters of Robinhood, a company that popularized the notion of commission-free trading.
The internet and stock market are aflame over Gamestop, the video game retailer whose stock is suddenly the darling of day traders who are putting the squeeze on Wall Street's big players. The stakes are enormous: The surge in trading drove Gamestop's value up by more than $10 billion on Wednesday alone. On Thursday, as several trading platforms placed restrictions on the stock, the shares slid 44%. Gamestop -- that feature of malls and shopping centers across the U.S. -- was worth about $2 billion in December. By Wednesday, it was worth $24 billion, roughly the same as meat giant Tyson and fuel refiner Valero Energy.
The US markets functioned well during January's GameStop volatility, while short-selling was not the main cause of the unprecedented rise in the "meme stock" according to a long-awaited Securities and Exchange Commission (SEC) report. The report published on Monday provides a postmortem into how amateur traders using commission-free retail brokerages drove shares in GameStop and other popular meme stocks to extreme highs, squeezing hedge funds that had bet against them. Amid the intense volatility, several brokerages restricted trading in the affected stocks, curbing the rally, infuriating retail traders, sparking outrage from policymakers, and leading to a congressional hearing. Despite the extraordinary series of events, the Commission concluded that the basic plumbing of the market remained "sound," an SEC official said. A key narrative of the GameStop incident is that an army of retail traders set off an enormous short squeeze by driving up stocks that hedge funds were betting against.
Like many retailers, already suffering from the shift to online sales, the video games chain is losing money and plans to close 450 stores this year. And yet, surprisingly, GameStop has become one the hottest stocks of the year. The 37-year-old chain store group is now the focus of a David-and-Goliath battle between an army of small investors and Wall Street that shows no signs of abating and has highlighted some fundamental shifts in investing. Last April, when the company announced mass closures, GameStop's shares (GME) could be bought for $3.25 each. On Tuesday they soared another 92% to end the day at close to $148, pumped up again by small investors hoping to ruin Wall Street bets that the price would crash.
Video game retailer GameStop has seen its stock soar, driven higher by a group of amateur day traders on Reddit, who are taking on Wall Street hedge funds. The frenzy has gotten the attention of regulators and lawmakers. Video game retailer GameStop has seen its stock soar, driven higher by a group of amateur day traders on Reddit, who are taking on Wall Street hedge funds. The frenzy has gotten the attention of regulators and lawmakers. There's a good chance you have heard that question many times in the past few days.