GameStop, Reddit and Robinhood: A full recap of the historic retail trading mania on Wall Street

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  • Shares of GameStop skyrocketed 400% in the past week, closing out January with a whopping 1,625% gain.
  • A band of amateur traders on WallStreetBets aimed to bid up heavily shorted stocks “to the moon,” creating massive short squeezes.
  • Members in the Reddit forum have tripled to 6.5 million in just a week.
  • The mania backfired on free-trading pioneer Robinhood, which had to throttle back trading in the short-squeeze names and raise new funds to meet rising deposit requirements with its clearinghouse.

GameStop mania took Wall Street by storm, thanks to a legion of retail traders glued to the WallStreetBets message board on Reddit.

Shares of the struggling brick-and-mortar video game retailer skyrocketed 400% in the past week, closing out January with a whopping 1,625% gain. A band of amateur traders in WallStreetBets forum, whose members have tripled to 6.5 million in just a week, aimed to bid up heavily shorted stocks “to the moon,” creating massive short squeezes that some believe caused a turmoil in the broader market.

The rally backfired on Robinhood, the free-trading pioneer and popular app. The young broker that wants to go public this year had to tap credit lines, raise new funds and throttle back trading in a list of the short-squeeze names. We learned Saturday morning in a new post from Robinhood why, with the broker explaining that the central Wall Street clearinghouse mandated a ten-fold increase in the firm’s deposit requirements on the week in order to ensure smooth settlement in trades involving the securities experiencing unprecedented volatility.

The reckless retail buying frenzy drew attention from high-profile investors including Elon Musk and Chamath Palihapitiya as well as a slew of lawmakers calling on regulators to intervene.

Here’s how the mania unfolded in the past week:

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The fast and furious action began Monday with GameStop shares more than doubling and within two hours turning red. The stock eventually closed 18% higher after multiple trading halts throughout the day.

The extreme volume in the name also started to raise eyebrows. GameStop was traded more than any S&P 500 stock on Monday.

Enthusiastic day traders on Reddit pushed one another to keep doubling down on GameStop. One top post Monday said “IM NOT SELLING THIS UNTIL AT LEAST $1000+ GME.” 

The struggling game retailer is a popular short target on Wall Street. In fact, more than 130% of its float shares had been borrowed and sold short, one of the most shorted names in the U.S. stock market, according to FactSet. Retail traders this month realized they could cause an artificial pop in the name if enough of them bought, forcing hedge funds betting against the stock to cover their losses by buying back the shares themselves. The squeeze game began to intensfiy.

“Chasing the squeeze is like buying a lottery ticket,” Lindsey Bell, chief investment strategist at Ally Invest, said in a note. “You might profit, but you might also lose everything. This type of speculative trading is more about luck and less about skill.”

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