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Online brokers on Thursday cracked down on retail investor bets on several very popular but volatile stocks, excluding traders from the market and drawing sharp criticism from some users and politicians.
Major US brokers including Schwab and Robinhood on Thursday curtailed trading in stocks such as GameStop, AMC and BlackBerry.
The move came as the largest retail brokers and applications faced intense user demand in the battle between day traders and professional short sellers that generated record trading volumes on Wall. Street.
Wednesday, more than 24 billion shares changed hands and 57 million stock options traded, also a one-day record, as investors crowded into companies such as Nokia, GameStop and Palantir. 13 billion additional shares were traded Thursday at noon.
The brokers’ interventions triggered a violent reaction from some clients. Within hours, a Robinhood client filed a class action lawsuit against the group in federal court. The lawsuit claimed that Robinhood “has completely blocked retail investors from buying [GameStop] for no legitimate reason ”, alleging that the user“ like so many others, has lost all earning opportunities ”.
The row also brought together rival politicians, the Democratic New York MP Alexandria Ocasio-Cortez and Republican Senator Ted Cruz.
“This is unacceptable. Now we need to find out more about [Robinhood’s] The decision to block retail investors from buying stocks while hedge funds can freely trade the stocks as they see fit, ”Ms. Ocasio-Cortez said on Twitter, to which Mr. Cruz replied,“ totally off. agreement ”.
Robinhood declined to comment on both the trial and Ms Ocasio-Cortez’s remarks.
Interactive Brokers, which has more than one million customers, has restricted investors to new trades in GameStop and increased margin requirements for writing options on multiple stocks, including AMC and BlackBerry.
“We had discussions on how to manage our risks as brokers. We need to be aware of the risk of our clients, especially those who use margin, ”said Steve Sosnick, chief strategist at Interactive Brokers. “We’re having conversations about it now.”
Robinhood, the online app that’s synonymous with the boom in retail, has doubled the amount of money customers need to accumulate to expand their transactions in GameStop, AMC, Bed Bath & Beyond and Koss. It also prevented investors from taking new positions in a small group of stocks. IG Group has also increased the margin requirements for GameStop stocks.
Broker eToro informed its clients after the market closed on Wednesday that it would not accept orders to trade the gaming company, among other stocks it considered “low liquidity,” while TD Ameritrade and its new owner Charles Schwab have both placed restrictions on new purchases from GameStop and AMC, as well as increased margin requirements for certain transactions. The move reflected “great caution,” the companies said.
“It’s not uncommon. . . to impose restrictions on certain transactions in certain securities in order to help mitigate risk to our clients, ”Schwab said.
Some retail investors reacted angrily. “You sell, the short sellers get their profits. . . Coincidentally, the apps will only let you sell, not buy? Asked a forum user, RedditTrading.
“That was always how it was going to be. They can change the rules at any time. They don’t lose, ”said another.
The platforms urged their users to be careful. “Whether or not we are in bubble territory. . . we urged our users to stick to the basics of investing: diversify, avoid leverage, and only invest in markets and instruments you are familiar with, ”said Gil Shapira, eToro investment director.
But retail enthusiasm shows no signs of slowing down. On January 27, Robinhood recorded its highest number of downloads from the US iOS app store, with 120,000 new downloads, according to data tracker AppTopia.
“We just don’t know when this will end,” said Rich Repetto, analyst at Piper Sandler. While volumes may decline, “we also believe zero commission is here to stay and it looks like an entire generation has been introduced to retail,” he added.
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