Robinhood, an American financial services company, stopped retail traders from buying stocks for several companies, including GameStop, AMC, Nokia, and some others. Out of all the stocks that were put under temporary restrictions, Gamestop’s stocks grabbed the most attention because people tried to revive GameStop’s bad financial position. The temporary restrictions were put on these companies’ stocks on the morning of January 28, 2021.
The subreddit r/WallStreetBets was responsible for taking the value of GameStop’s stocks to $347.51 on January 27, 2021. The value of stocks started rising on January 22, 2021, and continued till January 27, 2021. GME’s value fell to $193.60 on January 28, 2021, and again rose to $325 on January 29, 2021. The value of stocks collapsed and is around $50 at this time.
How GameStop’s Bad Financial Position Got Revived?
GameStop was struggling financially for quite some time. The value of their stocks was going down. Hedge fund Melvin Capital Management was betting against GameStop and was sure that the price of their stocks would fall. They sold the shares and expected the price of stocks to go down. But, some Reddit users recognized this move by the Hedge fund Melvin Capital Management and decided to revive GameStop’s bad financial position.
The Reddit users succeeded and successfully increased the value of GameStop’s stocks. This increased value of stocks worked against the Hedge fund Melvin Capital Management and many people who invested in GameStop at that time benefited heavily in the process. Some earned millions, while a few earned billions.
Melvin Capital lost 53% on its investments in January 2021. That’s a major loss and it’s extremely difficult to recover.
Controversies Behind This Move By Robinhood
Although Robinhood sent emails to their users in the afternoon of January 28, 2021, informing them that they would allow “limited buys”, there are still some controversies associated with it.
Many believe that Hedge fund Melvin Capital Management was shocked by the sudden and rapid increase in the price of stocks. To stop the further increase in prices, these major players asked Robinhood and many financial service companies to stop people from buying these stocks.
But Robinhood is telling a completely different story. They claimed “market volatility” to be the reason for their temporary restrictions on buying different stocks, including GME. On January 29, 2021, Robinhood posted a blog. In that blog, they highlighted that they required a substantial amount of money in hand to process the trades. Unfortunately, because of the large number of people from Reddit and other platforms supporting GameStop, they ran out of money.
On January 31, 2021, Vlad Tenev, the CEO of Robinhood appeared in an interview with Elon Musk on The Good Time Show. He claimed that Robinhood received a file with a request, which was around $3 Billion. For that reason, they had to put a temporary ban on the highly volatile stocks at the time. Vlad also claimed that Robinhood raised an emergency capital of $1 Billion so that people could trade again.
Response For Robinhood’s Actions
People on Reddit claimed that the reason for the sudden halt by Robinhood was because of the Hedge fund Melvin Capital Management. Users didn’t hold back and flooded the App Store and the Play Store with negative reviews for the application.
This incident has brought to light the monopoly of massive companies like Robinhood. But still, users on Reddit managed to shock the whole world with their combined effort to revive GameStop’s bad financial position in the market.
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