GameStop: Retail Traders Vs. Big Players

Robinhood and other online brokerages are facing a barrage of complex criticism after not allowing their retail traders to speculate on GameStop.

GameStop Stock

Online Brokerages Sphere of Influence Grows 

GameStop is a company that until a few weeks ago was known mostly by its ‘gaming’ clients and those on Wall Street who worked with the equity, but in the last week the company has been drawn into the spotlight as its valuation has swiftly increased. Robinhood and other retail brokers have helped create a bigger trading landscape the past year as a surge of online participants sitting in their homes participate in speculative equities. 

Robinhood and other online brokerages yesterday halted the buying of certain stocks with little warning because they deemed them too speculative, this included GameStop stock, which then began to lose value.  Robinhood and other online brokerages are likely concerned about getting hit with lawsuits if their clients start losing billions of dollars if and when the speculative equities tumble.  

When Robinhood halted buying, GameStop began to drop in value because it could not be boosted by retail traders. There are rumors that when Robinhood took action, hedge funds began to short the stock again. Since then Robinhood and others have started to allow limited buying. Robinhood and other brokerages have benefited from the surge in retail trading in stock markets since the start of coronavirus.

GameStop Becomes a Roller Coaster Ride 

GameStop (GME: NYSE) is a rather small brick and mortar gaming company that until the middle of January was a largely ignored equity on the NYSE. The stock began to get interest from retail traders via social media communities like the Reddit r/wallstreetbets group. GameStop was founded in 1984. GameStop has gone from nearly 17.00 USD early in January to nearly 468.00 USD on the 27th of January.  

GameStop (GME on NYSE)

The dynamic behind the rise in value of GameStop is because social media has provided a source for small traders to act as one. A trading tactic some retail speculators have used is to identify positions via legal documents that show large short positions of equities and to try and initiate a short squeeze. 

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