Day-trader favorites rally again as Robinhood eases trading ban

Published on Jan 29, 2021 04:27 PM IST

GameStop, the face of the retail craze that’s gripped Wall Street and drawn scrutiny from Washington, surged as much as 143% and was up 105% at $397 as of 5:36 a.m. in New York. The heavily shorted video-game retailer plunged 44% in Thursday’s US cash session for its first slump in six days.

Robinhood’s decision to rein in the risk to itself by banning certain trades and unwinding client bets -- igniting an outcry from customers and even US political leaders -- came after the stock market’s central clearing hub demanded large sums of collateral from brokerages that for weeks had facilitated spectacular jumps in shares such as GameStop.(AP)
Robinhood’s decision to rein in the risk to itself by banning certain trades and unwinding client bets -- igniting an outcry from customers and even US political leaders -- came after the stock market’s central clearing hub demanded large sums of collateral from brokerages that for weeks had facilitated spectacular jumps in shares such as GameStop.(AP)
Bloomberg |

GameStop Corp. and other day-trader favorites rallied strongly after Thursday’s tumble as brokerages said they would start to ease trading restrictions, setting the scene for another wild day on the markets.

GameStop, the face of the retail craze that’s gripped Wall Street and drawn scrutiny from Washington, surged as much as 143% and was up 105% at $397 as of 5:36 a.m. in New York. The heavily shorted video-game retailer plunged 44% in Thursday’s US cash session for its first slump in six days.

Other darlings among members of the WallStreeetBets forum behind the wild rides in left-for-dead stocks also got a boost. AMC Entertainment Holdings Inc. rose 61% in premarket trading after plunging 57% during regular hours.

The day-trader favorites rallied after Robinhood Markets Inc. said it would lift some trading restrictions that prevented legions of investors from buying stocks that had been going straight up for days. The online brokerage said clients would be able to make limited purchases of some of the companies that it blocked, but did not provide further details.

Trading 212, another app, said it enabled trading of GameStop and AMC, two of the stocks whose meteoric gains have delivered massive losses to some prominent hedge funds that held large short positions in them.

“It indicates, perhaps, more extreme price dislocation in these stocks,” said Andrew Ross, managing member of Confluence Global Capital, an event-driven hedge fund. That “may cause enhanced volatility in other parts of the market, as well. These stocks have become their own ecosystem to some extent.”

Robinhood’s decision to rein in the risk to itself by banning certain trades and unwinding client bets -- igniting an outcry from customers and even US political leaders -- came after the stock market’s central clearing hub demanded large sums of collateral from brokerages that for weeks had facilitated spectacular jumps in shares such as GameStop. The trading platform also said on Thursday it was raising an emergency infusion of more than $1 billion from its existing investors.

“Very large scale buying assaults may become more difficult, when brokers have to put higher collateral up,” said Martin Moeller, co-head of Swiss and global equities at Union Bancaire Privee in Geneva.

The move by the brokerages sent this month’s retail favorites tumbling Thursday, though their rebound since the close of trade in New York and in US premarket sets up another rough patch for the Wall Street establishment that has been under pressure from the Reddit army of day traders.

Concerns about the continuing volatility driven by retail-trader speculation in the US weighed on European stocks Friday, with the Stoxx 600 Index falling 1.3% and US equity futures also dropping.

WallStreetBets Defense

Defending the WallStreetBets forum that has been the launching point for many of this week’s blistering rallies, Reddit Chief Executive Officer Steve Huffman said Thursday that while it is “by no means perfect,” “they’ve been well in the bounds of our content policy.”

Users on the forum jumped past 4 million as the phenomenon became a national sensation, reaching the doorsteps of both new President Joe Biden’s administration and Federal Reserve Chairman Jerome Powell. The Senate has said it will order a hearing, while other lawmakers ripped the brokerages for denying access.

“It’s absolutely wrong to characterize this trade as an angry mob of pajama traders fighting against hedge funds,” said Nicolas Roth, head of alternative investments at Geneva-based private bank Reyl & Cie. “The situation is more sophisticated than this and the trade a fine piece of financial engineering, with catalysts and knowledge of the particular situation of all parties involved.”

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