Economy

Gamestop: Online brokers restrict trading in the hype share

REUTERS / Rick Wilking

The purchases of the Gamestop share coordinated via the Internet are becoming a test of strength for several groups on the stock market. Private investors had made an appointment via the Internet platform in order to drive up the price of the economically troubled company with purchases. Apparently there are also many young small shareholders among them. There were large short positions by hedge funds on Gamestop stock. Since these short sellers suffered heavy losses due to the strong rise in the share, they had to buy back the security at high prices, which made the price rise even more. This is exactly the short squeeze that Reddit investors wanted to achieve.

As a result of this effect, the Gamestop share has risen by 1,700 percent since the beginning of the year. It is now becoming increasingly clear what danger threatens small shareholders – both in Germany and in the USA.

In this country, numerous private investors complained about the online broker Trade Republic because trading via the app was not possible during the day. Investors could no longer trade shares or delete any orders stored in the system. Trade Republic also spoke up.

Trade Republic: Customers can no longer trade

The broker emphasized: “Due to the currently high order volume, there was a technical problem at our trading center. We are working on fixing the problem as soon as possible! ”Thus, the hype of the Gamestop share also has an impact on investors who did not participate in the speculation themselves.

The participants in the speculation also run a high risk. Even if investors have made high book profits with the Gamestop share, they cannot sell their shares now. During the course of the day, the share comes under pressure, which means that some investors are now clearly in the red because they were unable to sell their shares.

In the evening, Trade Republic emailed customers that they could no longer buy shares in Gamestop through the platform. The reason is an “unprecedented situation” because the shares are “the subject of fierce, coordinated price speculation”. Due to the associated risks, no new orders to buy shares in Gamestop, AMC Entertainment, Blackberry, Nokia, Express and Bed Bath & Beyond will be accepted for the time being.

Excerpt from the Mail from Trade Republic to all customers.

Excerpt from the Mail from Trade Republic to all customers.

Screenshot email Trade Republic

As soon as trading is possible again, many investors are likely to want to sell their shares at the same time, which creates an oversupply and the price is likely to be burdened. This restriction of trading therefore causes many investors to sell their papers too quickly and the price to fall.

The situation is similar in the USA. The Robinhood app also announced that the shares can only be sold but no longer bought.

As a result, the shares of Gamestop, Blackberry and AMC Entertainment fell significantly in some cases. However, they also recovered quickly, but were very volatile over the course of the day. For example, Gamestop stock fluctuated between $ 110 and $ 470 in the first two hours after trading opened in the United States.

Intraday chart Gamestop

Intraday chart Gamestop

NewsABC.net

There were heavy allegations against Robinhood in the Reddit forum. Some users speak of market manipulation because of the restriction on trading. They complain that their actions are regulated by the exchange regulator and brokers. So far, the Robinhood app has been particularly popular in the USA. The regulation of the trading of Gamestop and Co. could mean a setback in the steep development of the provider.

Gamestop share: the overall market could suffer from hype

The rally at Gamestop sparked by Reddit investors is also having an impact on the overall market. In order to limit their losses at Gamestop, hedge funds have to sell other – sometimes large – positions. This can also put the stocks of large companies under pressure and drag the overall market down. “Depending on the positions held by the hedge fund, the price of various stocks can fall and the overall market can be affected,” said Jochen Stanzl, chief market analyst at online broker CMC Markets, in an interview with NewsABC.net.

That is why the stock exchange supervisory authority and the US Federal Reserve are looking at what is happening around Gamestop, Blackberry and Co. Some investors, including private investors, are likely to get very rich from this hype. But the vast majority of the investors involved will come out of the speculation with major losses. Those who jump on the bandwagon have to be aware that they can lose all their money. The fact that you can no longer get rid of your shares with some brokers is a warning signal.

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