Robinhood, a popular investing app, became the subject of controversy on January 28 when it restricted trading in GameStop shares. This decision was made after Reddit traders started an unprecedented buying frenzy for the stock, leading to its unexpected spike in price.
WallStreetBet traders were incensed that Robinhood had decided to limit trading. They labeled the decision “market manipulation” and “unfair”.
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How to Use
Robinhood is a widely used stock trading and investing app that provides individual investors with an accessible way to invest in the market. It has seen rapid growth over recent years, particularly as it added options trading capabilities.
Robinhood is renowned for halting trades around hot stocks like GameStop (GME) and AMC Theatres (AMC) during a trading frenzies in early 2021. When demand surged, Robinhood found itself obligated to pay more than it had in collateral to settle the sudden surge of trades.
Companies often take steps to minimize risks. This is especially true for startups in their early growth stages.
However, this type of market intervention is not without its drawbacks. There are plenty of reasons to believe that Robinhood’s decision to freeze GameStop trades was not the wisest course of action.
One of the primary concerns with this decision is that it inflamed both investors and regulators. Not only did it represent a major misstep in Robinhood’s attempt to decentralize stock trading, but it also flouted their own mission statement which emphasizes user freedom to trade as they please.
The decision was made despite mounting criticism, including numerous one-star reviews. This caused a storm of negative publicity and has raised questions about the app’s transparency and accountability.
Once the dust settles, we hope the House Committee on Financial Services’ report “Game Stopped: How the Meme Stock Market Event Exposed Troubling Business Practices, Inadequate Risk Management, and the Need for Regulatory and Legislative Reform” will be taken seriously and used as motivation to advance an important policy agenda. Furthermore, we hope this increased attention will enhance consumer protections while stimulating innovation.
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Getting Started
Robinhood is an app-based investing platform that makes stock trading effortless without the need for a brokerage account. Signing up is simple; just provide your personal information, contact details and means of funding your account. Once approved, Robinhood allows for immediate bank transfers into your account as well as instant verification with many major banks – saving you from having to report micro-deposits manually.
Though the app can provide a convenient way to trade stocks, it’s essential to remember that the market is volatile and never invest more money than you can afford to lose. Particularly if using the service for the first time, be sure to understand all potential risks and consult a financial adviser before making any decisions.
The app also offers an array of charting features that can assist in forecasting future prices. You may monitor key indicators like Bollinger Bands and moving averages for added insight.
On January 28, 2019, Robinhood stock trading app abruptly stopped accepting all buy orders for GameStop after a Reddit thread caused an unprecedented trading frenzy that sent shares of the video game retailer surging. This decision angered many investors who felt Robinhood went against its stated mission to “democratize” the market by allowing retail investors to purchase GameStop shares.
Users on WallStreetBets, a large community of Robinhood investors, took to Twitter and other social media to voice their displeasure with the app’s decision. Some criticized the company for acting too quickly while others complained about having to wait several days before making another investment. Congressmen called for a hearing while New York and Texas attorneys general launched investigations into the situation.
Robinhood’s co-founders aim to further democratize the market by making investing easier and making sure their business remains compliant with regulations. While they have taken a number of steps towards improving policies and practices, Robinhood will need to stay ahead of ongoing volatility if it wants to prevent another financial crisis like this one.
Buying Stocks
Investing in stocks can be a lucrative way to make money on the stock market. Share prices are usually determined by demand for them and economic factors like interest rates or government policies. While there are various kinds of stocks, most retail investors invest in companies with low-to-moderate volatility and strong growth potential.
Robinhood investing apps make stock trading and buying and selling stocks a breeze. Users can open a margin account, enabling them to purchase shares using borrowed money – an ideal method for beginners as it lets them test the waters before investing their own capital.
However, stocks can experience sharp price drops or jumps if there’s too much demand for them. This is known as a “short squeeze,” and it’s an unfortunately common occurrence on the stock market. Reddit users who purchased shares of GameStop or AMC (AMC) during the rally were able to benefit from this practice at the expense of longer-term investors who held these shares.
These traders caused the prices of GameStop and AMC to soar in early January. Not only did they make money, but it also drew attention to speculative stocks. It sparked an intense debate on social media platforms as well as in the investment community, with prominent investors like Elon Musk and Chamath Palihapitiya calling on regulators to take action.
On Friday, Robinhood took action to restrict gameStop and AMC buying. The trading app announced that it would limit trades in these companies to position closing, meaning investors can only purchase a single share of each.
Last week, Redditors and other retail investors became embroiled in the GameStop-AMC short squeeze. This drew the attention of regulators and lawmakers, as well as inflaming many on social media – including rappers and Representative Alexandria Ocasio-Cortez – with their trading.
Robinhood was ultimately forced to raise its deposit requirements by tenfold after Wall Street clearinghouse regulators ordered them. This forced the app to access credit lines, raise new funds and restrict trading in some of the most volatile speculative stocks, leading to widespread reaction from customers. The decision has had far-reaching repercussions throughout the financial industry and caused massive uproar from users.
Selling Stocks
In 2017, the stock market saw a meteoric rise in popularity thanks to trading app Robinhood, which attracted an entirely new generation of investors. Not only does the platform make investing easy for anyone – no commissions required – but it’s also free from charges.
Recently, however, the app came under fire when it halted purchases of GameStop (NYSE: GME), AMC (NYSE: AMC), BlackBerry (NYSE: BBY), Bed Bath & Beyond (NYSE: BBBY) and Nokia (NYSE: NOK) due to extreme volatility in their shares. These actions sparked criticism from users, celebrities and U.S. politicians who say small investors are being treated unfairly.
On January 28th, some questioned the legality of Robinhood’s sudden halt of trading in these stocks. The broker claimed it was due to lack of collateral at clearing houses that could execute trades for customers; however, critics such as members of Congress and prominent businesspeople and politicians asserted this move was an example of market manipulation and that Robinhood should be required to reopen these trades immediately.
App-based brokerages have often restricted trading of certain stocks for various reasons, but it appears this time their aim was to safeguard Wall Street firms from large losses.
One of the main complaints against Robinhood is their practice of collecting payments for order flow from Wall Street firms. This practice, common among most trading apps, raises serious doubts among investors when stocks lose money. It could impact their profits and that of their e-brokers as well.
Another major concern is that some traders have reported that e-brokers have sold their full shares in these stocks even though the traders don’t believe this was their intent. It appears the e-brokers are placing margin orders on users’ accounts, potentially leading to the sale of their holdings if they can’t repay their loans.
