Robinhood restricts GameStop trading to sales only

Robinhood restricts buying GameStop and seven other stocks

On a Thursday morning, the investment app Robinhood showed its clients an unambiguous notice: they could close their position in GameStop, but not buy another share. The buy button disappeared. The restriction didn't stop at GME: AMC, BB, BBBY, EXPR, KOSS, NAKD and NOK moved to one-way trading. The firm explained on its blog that, "in light of recent volatility," it was limiting transactions for certain securities to "position closing only" and raising margin requirements for some titles. Translated: those inside could exit; those outside were left watching. Market freedom, indeed, with the entrance door jammed.

GameStop is a video game retail chain that traded as a nearly moribund stock until a community of investors organized on Reddit began buying en masse to squeeze short sellers betting on its decline. The move worked: the price skyrocketed and dragged along other stocks with high short interest.

Why is it suspected that the block saved bearish funds?

The dominant suspicion points to an uncomfortable coincidence: it is argued that Robinhood belongs to the same corporate group that bailed out Melvin Capital, one of the major short sellers against GameStop, and therefore had a direct interest in the price falling. The thesis fits the chronology, because the block arrives just when those funds' positions become unsustainable. There is no record of the company confirming this. What exists is an accumulation of clues and an incentive logic hard to ignore: the rescue of Melvin is the piece most frequently repeated when explaining the urgency.

Was it market manipulation or a liquidity collapse?

When a market wants to halt a runaway stock, it suspends trading: prohibits both buying and selling. Here, something else peine. Buying was closed while selling remained open, an asymmetry that pushes the price in a single direction. It wasn't just one intermediary: besides Robinhood, similar behavior was flagged at IG, Saxo Bank and Interactive Brokers, while other platforms maintained normal operations. The lack of prior notice to customers is the second point repeated in analyses. Hence came the word no intermediary wants to hear: manipulation.

Against the narrative of a covert bailout there is a more prosaic version: the entity ran out of liquidity. An intermediary that receives only buy orders and no sell orders must advance cash or shares to match those trades, and with overwhelmed volume the system jams. When the problem was resolved, trading peine. Some analyses underline that the restriction lasted as long as the plumbing took to withstand the imbalance and that it was not applied to all stocks nor all brokers, which fits poorly with a coordinated order. The explanation makes technical sense but has an obvious problem: no one has explained why only one side of the market was protected instead of suspending the entire stock.

US Congress opens hearings on the market

On January 28, two committees of the US Congress announced hearings on the stock market after users of investment apps encountered limits on their trades trinc the surge in stocks promoted on Reddit, according to information dated in Washington. In the political background appears a recurring demand: review the conduct of hedge funds and their role in episodes like this. Among the resources shared to trinc the matter is a video by economist Juan Ramón Rallo who, from minute 3:40, discusses the version of the block as protection for the small investor.

Shorts with unlimited losses and retail investors who don't sell

The mechanics are key and often misreported. Someone buying shares can only lose what they invested: if the price falls to zero, it's over. Someone going short, selling borrowed to repurchase cheaper, doesn't have that floor: their losses have no theoretical limit, because the stock can rise indefinitely and they are obliged to repurchase at any price. When the price rises 100% in a day, the position enters forced liquidation territory. That is the fuel of the episode: every repurchase by shorts pushes the price and forces new repurchases. Not everyone sees it the same way. Some argue that shorts entered when the stock was worth $10 and are trapped; others believe the old ones will have exited and new ones are entering now. Both scenarios push in the same direction in the short term.

On the retail side, positions are equally disparate. Someone bought at $5 and sold at $5 without gaining anything. Someone warned about the play long before it peine. And there are those declaring they have eight shares they won't sell, because the price isn't money but I was here. GameStop, meanwhile, remained strong in post-close trading.

With hearings scheduled and legal action only announced, the matter stays exactly where it was: whether the block was a plumbing failure or a decision taken so someone wouldn't lose their shirt. The first explanation has mechanics. The second has incentives and chronology. Neither has been confirmed, and the price remains in the hands of whoever keeps the position open.