GameStop’s stock price surged 103 per cent as the Robinhood app is set to lift restrictions after limiting buying following a Reddit rally, according to reports.
The stock soared to 103 per cent at $393.01 in the early hours of Friday morning as the popular stock trading app Robinhood was slammed for stopping users from buying and selling GameStop shares, Bloomberg reported.
Friday’s pre-market trading saw GameStop shares, along with AMC Entertainment Inc, spike.
The major increase in GameStop shares come after the Thursday trading day closed with the company down 44 per cent.
Despite limited trading rules prompting AMC Entertainment shares to drop 56 per cent, the company later rebounded to 70 per cent in pre-market trading on Friday.
Amateur investors dramatically increased the share price of GameStop – a US computer games retailer that has been struggling to compete with the shift to online shopping – with a majority of stock purchases coming through trading apps.
In a push to prevent hedge funds from making money on GameStop’s bad performance, a group on the social media website Reddit pushed users to buy the stock to drive up share prices.
“We continuously monitor the markets and make changes where necessary,” Robinhood said in a statement on Thursday.
“In light of recent volatility, we are restricting transactions for certain securities to position closing only.”
The move sparked instant backlash again the trading app.
HOW THE GAMESTOP CONTROVERSY STARTED
US company GameStop is a brick-and-mortar video game retailer that has been struggling with profits due to store closures, decline in physical sales and the COVID-19 pandemic.
Its stock has been hovering between $US3 ($A4) and $US10 ($13) for much of the past year but has hit four straight days of increases.
At one stage its stock was priced higher than Apple, Facebook, Microsoft and Disney, as it surged by 93 per cent with its shares climbing above $US300 ($A393).
Individuals investors, many from the Reddit sub group that has nearly four million members, have driven the share price up using an app called Robinhood. It lets anyone trade stocks without commission.
Billionaire Elon Musk added more fuel to the fire when he tweeted a link to the Reddit message board, which saw GameStop’s stock end the day on Wednesday up nearly seven times its value from where it was less than a month ago.
The feud is playing out because of a stock market strategy called “short selling”, which was the subject behind the Academy Award-nominated film The Big Short, which revealed how the GFC was triggered by the United States housing bubble.
Basically, it’s when investors make a profit by selling stock they think is going to dive in value and then buy it back at a lower price.
Meanwhile, Robinhood raised more than $1 billion on Thursday from its original investors, the New York Times reported.
The unexpected rise in amateur investors led Robinhood to take action to sort out its financial requirements.
The Times explained the increased buying and selling “has put a strain on Robinhood, which has to pay customers who are owed money from trades while posting additional cash to its clearing facility to insulate its trading partners from potential losses.”
Two unnamed sources told the news outlet Robinhood needed a significant amount of cash fast to prevent added trading limits.
On Thursday afternoon, Vladimir Tenev – the co-founder and CEO of Robinhood – revealed the company will start allowing limited buys on Friday.
“Starting tomorrow, we plan to allow limited buys of these securities,” Mr Tenev tweeted.
“We’ll continue to monitor the situation and make adjustments as needed.”
In two follow-up tweets, he wrote: “We cannot control, however, the lightning-fast spread of information and misinformation that takes place on social media, and for that I am incredibly sorry to our customers and staff for this.
“We stand in support of you, our customers. Democratising finance for all means giving more people access, not less.
RELATED: GameStop stock soars
“We’ll keep monitoring market conditions and will update this Help Centre article with the latest changes.”
All this comes as the value of Dogecoin – a cryptocurrency launched in 2013 – has gone down after becoming the target of Reddit traders.
The stock sharing frenzy prompted Robinhood to be hit with “multiple lawsuits” for blocking GameStop and AMC “Reddit rally” trading as companies’ shares plummet.
A pair of federal lawsuits were filed on Thursday, blaming the trading platform for alleged market manipulation, Law and Crime reported.
The first suit was filed by user Brendon Nelson in the Southern District of New York, alleging that the app engaged in unlawful market manipulation, the outlet reported.
The second was filed by user Richard Joseph Gatz in the Northern District of Illinois, accusing the platform of protecting “institutional investment at the detriment of retail customers.”