How To Trade GameStop Trading Frenzy With ETFs

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The world's largest video game retailer — GameStop (GME - Free Report) — has become one of the most heavily traded stocks of this year. After an epic rally of more than 1,700% since Jan 12, the stock frenzy hit brakes following trading restrictions on platforms such as Robinhood Markets and Interactive Brokers Group. As such, the news triggered a plunge of more than 44% in the stock on the Jan 28 trading session, wiping out nearly $11 billion in market value.

Robinhood blocked clients from making new purchases, only allowing them to sell their existing positions while Interactive Brokers put GameStop option trading into liquidation due to the "extraordinary volatility in the markets." E*Trade Financial also prevented customers from purchasing shares of the company. Webull, another trading app, said customers could only liquidate positions that they already had in GameStop. The move comes a day after TD Ameritrade became the first online broker to place restrictions on the trading of the video game retailer.

Further, the social media trading frenzy has attracted regulatory scrutiny from the U.S. Securities and Exchange Commission. However, GameStop shares rebounded in the pre-market today after Robinhood said it would “allow limited buys of these securities.”

Inside the GameStop Crazy Run

The dramatic jump in GameStop is a result of an extraordinary frenzy spurred by social media posts from prominent CEOs and Internet influencers as well as a hedge-fund-driven short squeeze. In particular, Reddit’s “Wall Street Bets” forum popularized the stock as a value investment that pushed GME shares to as high as $483 from $18.84 at the start of the year, sending market capitalization to $25 billion.

Notably, short squeeze is a term used by market participants to refer to a phenomenon where short sellers in a stock who have placed their bets on a stock’s fall, rush to hedge their positions or buy the stock in the event of an adverse price movement, in order to cover their losses.
This leads to a sharp rise in demand for the share and a huge rally in share prices.

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Disclosure: contains statements and statistics that have been obtained from sources believed to be reliable but are not guaranteed as to accuracy or completeness. References to any ...

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