Another day of trading’s in the books, and the speculative frenzy continues. GameStop (NYSE: GME), Koss (NASDAQ: KOSS), and others surged again at the open this morning as traders from Reddit doubled down on their bets.
In order to slow the “squeezers,” brokers limited trading on certain stocks. Robinhood, arguably the largest source of the buying, went so far as to suspend GameStop and AMC purchases completely.
The decision to do so has drawn massive criticism from outspoken investors, many of whom are participating in the speculation.
“Somebody is going to have to explain to me in what world @RobinhoodApp and others literally trying to force a crash by closing the open market is fair?” asked Barstool Sports founder Dave Portnoy on Twitter.
“They should all be in jail.”
He continued, adding:
“Either @RobinhoodApp allows free trading or it’s the end of Robinhood. Period.”
The Twitter account for Zero Hedge, a popular libertarian financial blog, sarcastically pondered if there was “a restricted list for stocks that anyone without a Hampton’s mansion can no longer trade?”
Robinhood then issued a statement attempting to rationalize the trading platform’s recent actions:
“We continuously monitor the markets and make changes where necessary. In light of recent volatility, we are restricting transactions for certain securities to position closing only, including $AMC, $BB, $BBBY, $EXPR, $GME, $KOSS, $NAKD and $NOK. We also raised margin requirements for certain securities.”
Soon after, Robinhood went down. Stock, option, and crypto orders became unavailable. Robinhood’s iOS, Android, and web apps were unresponsive as well.
It’s clear that the war on Wall Street is still going strong. And according to a morning report from Bloomberg, regulators don’t feel the need to step in just yet.
“We do not believe the SEC will issue an emergency order nor will the Fed change margin requirements,” analysts told Bloomberg.
“The only possible action that will potentially be taken is the SEC suspending trading in one or more of the names for one to two business days.”
But even that might not be enough to stem the tide of short squeezes. Unable to trade GME and AMC, retail investors are now shifting their focus to the precious metals market.
“ALL IN ON $AG. LET’S GET THE MINERS,” exclaimed Reddit user jjal30, before also asking “why not squeeze $SLV to real physical price?”
It’s long been believed by silver traders that the paper silver market is suppressing real, physical silver. Now, with stocks like First Majestic Silver Corp. (NYSE: AG) and the iShares Silver Trust (NYSE: SLV) in their sights, Reddit traders hope to shake-up the paper and physical markets.
AG got off to a roaring start this morning, erupting for a gain of over 30%. SLV saw a much more modest increase, by comparison, opening just 5% higher.
Most analysts lambasted the speculators themselves, but Timothy Welsh, founder and CEO of Nexus Strategy, says no-fee brokers ultimately primed the market for this week’s short squeezes.
“This is a big problem of the e-brokers’ own making as they are so beholden to their payment for order flow overlords and shows the real fragility of the zero commission business model,” Welsh said.
Robinhood revolutionized the online brokerage industry by introducing no-fee trades. In order to make money on the transactions, they instead sold their customer order flows to Wall Street firms that paid handsomely to execute the orders.
For Robinhood, the sale of order flows is the broker’s largest source of revenue. It helped institutional investors better time the market, profiting off trends formed by retail traders that Wall Street saw coming in advance.
“The high-frequency traders and hedge funds that could predictably trade against the ‘dumb’ money from Robinhood traders and pay Robinhood for that information are now realizing that the order flow they are buying is no longer predictable or safe for them,” Welsh explained.
“In fact, it now includes thermonuclear bombs in the form of GameStop and AMC.”
And so, regardless of where you may stand on the issue, the fact is that the retail bloodlust should persist. Even if regulators and broker limit trading on certain stocks, they can’t move faster than the mob of traders armed with stimulus checks, who will simply shift to new targets.
That means the recent choppiness won’t end any time soon either, no matter how many stocks the e-brokers attempt to put on ice.
Because, at the moment, millions of Reddit traders look like they’ll be able to remain irrational longer than the short hedge funds can remain solvent.
And that has bulls very worried about the market’s short-term future.
