Popular online stock trading platform Robinhood announced on January 28, 2021, “In light of recent volatility, we are restricting transactions for certain securities to position closing only, including $AAL, $AMC, $BB, $BBBY, $CTRM, $EXPR, $GME, $KOSS, $NAKD, $NOK, $SNDL, $TR, and $TRVG. We also raised margin requirements for certain securities.” The decision to restrict trading has already led to multiple lawsuits against Robinhood by investors, including in connection with Robinhood’s new restrictions on trading Gamestop, Blackberry, Nokia, and AMC Theaters. The Chicago Tribune reported that other brokerages, including Schwab, TD Ameritrade, and Interactive Brokers, also limited trading in certain stocks. Robinhood’s decision drew attention from prominent politicians at both ends of the political spectrum including Alexandria Ocasio-Cortez (AOC). Then, Robinhood reversed course and lifted some of the trading restrictions it had just implemented.
Gamestop, in particular, gained attention in recent weeks as the price of its shares surged. Forbes and other outlets reported that smaller investors drove the price increase as part of a “short squeeze.” A short squeeze can occur when rapid increases in the price of a stock lead to short sellers (investors who have shorted a stock) covering their positions. Covering requires buying shares of the stock, which in turn further increases the price. The Guardian and others have reported that members of the reddit forum wallstreetbets helped drive the rapid increase in the price of Gamestop stock that in turn caused the short squeeze.