Update: Robinhood has made public note of the changes, stating that “in light of recent volatility” it is “restricting transactions for certain securities to position closing only, including $AMC, $BB, $BBBY, $EXPR, $GME, $KOSS, $NAKD and $NOK.” The company added that it has “raised margin requirements for certain securities.”
Robinhood, the popular consumer trading application, has restricted its users from making some popular investments and wagers, public reports indicate. Social media is awash with notes from individual Robinhood users indicating that some popular securities are now untradable, and the company reportedly sent out a note yesterday saying that it is “implementing certain restrictions for for GME [GameStop] and AMC [the theater chain] options trading.”
TechCrunch has multiple emails in to the company asking for clarification regarding what trades, and securities are banned in aggregate, and the reasoning behind the move, but we’ve yet to hear back at time of publication. User commentary thus far concerning Robinhood’s choice has been swift, and negative, however.
Robinhood’s decision comes after zero-cost trading platforms found themselves at the center of one of the public market’s more bizarre sagas, in which a horde of retail investors bid shares of heavily-shorted securities higher in an attempt to break the trades of professional investors; precisely who is making the bets, and what portion of the new wagers are from individual investors and not larger pools of capital following the trade is not clear.
Yesterday, after noting that some traditional online brokers had restricted some user access to certain securities, citing their volatility, TechCrunch asked Robinhood and a number of its peers if they were taking similar precautions.
One of the group added some protection, but most cited their focus on long-term shareholding over day trading; a fair position but one at odds with the fact that most free-trading apps generate revenue from consumer trade volume. And options and other more exotic trades generate more revenue for neo-brokers than trades executed in well-known stocks.
Robinhood’s latest move, then, will ding its revenues as it is no longer allowing for trading in some very popular securities and other market-based wagers.
This is not the first time that neo-brokers have come up against tension between their business model and user access to exotic investments. After a Robinhood user committed suicide after trading options and not understanding one of their trades, a tragedy, Robinhood worked to make options trading harder to get into. That was definitely the right call, but likely not great for its revenue in the short-term, we imagine, given how lucrative those trades have historically proven for the company.
Options volume is setting records. Trading volume is at historical highs. And at the time of writing, shares of GameStop are set to rally at the open yet again today. Let’s see what happens.