Webull, a trading app seen as an alternative to Robinhood, is also restricting users from buying new shares from GameStop (GME), AMC (AMC) and Koss (KOSS), a small headphones company whose stock took off this week.
The company announced the news in a tweet Thursday, citing market volatility as the reason its halting share buying in these companies.
“Due to the extreme volatility in the symbols AMC, GME, and KOSS, our clearing firm will no longer be able to support clearance on these symbols. As a result, Webull is forced to set all transactions in these symbols to liquidate only.”
Robinhood and other platforms came under fire for their decision to restrict trades Thursday. The Reddit group WallStreetBets, which has led the jaw-dropping surges in those stocks, accused Robinhood of market manipulation.
As the stock frenzy continues, trading app Robinhood is restricting transactions for certain securities including GameStop (GME), BlackBerry (BB) and AMC (AMC). Senator Ted Cruz and Representative Alexandria Ocasio-Cortez — two lawmakers from opposite ends of the political spectrum — aren’t happy about it.
On Thursday, AOC, a progressive Democrat, tweeted: “This is unacceptable. We now need to know more about @RobinhoodApp’s decision to block retail investors from purchasing stock while hedge funds are freely able to trade the stock as they see fit. As a member of the Financial Services Cmte, I’d support a hearing if necessary.”
Cruz, a conservative Republican, retweeted Ocasio-Cortez with a surprisingly un-ironic “Fully agree.”
Robinhood is free for investors, touting itself as democratizing the world for young traders. So how does the app make money? In part through a controversial industry practice known as payment for order flow.
Here’s how it works: Brokerage firms like Robinhood can cash in on where they send customers’ trade orders. Broker-dealers – including market movers like high-frequency trading firms – pay Robinhood for executing the trades with them.
That works out well for Robinhood, whose CEO has previously defended the practice to CNN Business’ Matt Egan. But it hasn’t always been ideal for Robinhood’s investors.
In 2019 the company was fined by a regulator for sending customer trading orders a few years prior to four broker-dealers without guaranteeing the best price.
Robinhood said at the time that the charges no longer reflected their current practices. But then again in December 2020, the company agreed to pay a $65 million fine to the SEC to settle similar charges — that Robinhood failed “to satisfy its duty to seek the best reasonably available terms to execute customer orders,” and didn’t disclose that it received payments for order flow.
The SEC said Robinhood benefited from executing the trades that weren’t ideal for its customers, and that investors lost out on $34.1 million (even after taking into account the savings from the commission-free trades).
GameStop (GME) was up as much as 39% Thursday before crashing as much as 67%.
The roller coaster was set in motion after Robinhood banned trades of the stock earlier this morning.
The last time GameStop fell was January 20, when it slipped less than 1%. In the 13 trading sessions since GameStop announced its new board, the stock has risen 500% and has fallen at the end of just 3 sessions.
The app’s ratings has fallen to a 1 star on Google Play. Reviewers are criticizing Robinhood for the move and calling it “market manipulation.” Another person wrote “Horrible app, no notion of a free market.”
Robinhood is still maintaining its 4.8 out of 5 rating on Apple’s App Store.
Koss (KOSS), a small Milwaukee-based firm, has soared 800% in 2021 — from just under $3.50 a share to about $47. Most of the stock’s gains have taken place in the past week. GameStop, if you’re keeping score, is up “just” a little more than 600% year-to-date.
Why is Koss doing so well? After all, the company reported a nearly 4% drop in sales in its most recent quarter due to weaker demand at big retailers,
It appears that Koss has also received positive mentions from Reddit’s WallStreetBets members. The company, like GameStop, is a target of short-sellers — as hedge fund manager Will Meade pointed out on Twitter. Koss gets a fair amount of love from the headphones subreddit as well.
Koss was not immediately available for comment about the stock’s surge. But CEO Michael Koss said in the company’s October earnings report that things are going better for the company than the headline numbers would suggest.
“We experienced an increase in online direct-to-consumer sales driven by the continuation of people studying and working from home. Additionally, we saw a rebound in our export markets, especially in Europe, and in many of our US-based distributors,” Koss said.
Still, the stock’s huge move has some consequences. Koss was one of eight stocks — along with GameStop, AMC (AMC) and BlackBerry (BB) — that is now restricted by Robinhood. Koss shares were extremely volatile Thursday, swinging from big gains to a nearly 50% loss by midday.
Billionaire Dallas Mavericks owner Mark Cuban told CNN that the frenzy happening around stocks like GameStop is “truly business as usual with the only change being small stock traders giving the business to the big short sellers.”
Cuban tweeted support for the Reddit group sending GameStop sky-high.
He also sent a warning to naysayers:
GameStop might be tumbling but the major stock indexes are soaring today.
The Dow is up some 500 points, or 1.6%, after just an hour and a half of trading.
The man who founded WallStreetBets on Reddit says he could never have predicted the frenzy around stocks like GameStop.
Speaking to Julia Chatterley on First Move, Jaime Rogozinski said:
This happened so quick, so fast. The turning point was when I saw yesterday that the White House was commenting on this story. I can’t imagine that I ever envisioned this happening.”
Watch the full interview below.