Silver surges as retail traders target short sellers
Feb 04 2021
At the time of writing GameStop stock is still well over last year's average of around $US5 ($7), but has tanked relative to where it was last week. The combination of instant social media information, with these digital brokerships can and has led to swathes of first-time investors jumping on a bandwagon that is propped up by unverified information, with many of these investors overlooking due diligence in the hope of quick gains.
The head of the U.S. Securities and Exchange Commission, which regulates markets, will meet with Treasury Security Janet Yellen and the heads of the Federal Reserve and the Commodity Futures Trading Commission as soon as Thursday, a Treasury official told Reuters. That means they have to buy stock to cover the stock they borrowed to sell short, which further increases demand and causes prices to go even higher.
The firm did so after WallStreetBets, which started as a Reddit group with over two million subscribers, initiated a coordinated pumping of the GME shares. In the days following GameStop's trip to the moon, other seemingly forgotten early aughts retailers saw their own stocks rise as well. "Reddit has proved that a community of people can make meaningful change by focusing on buying up certain companies".
This is where Robinhood and its online trading app buddies come into play.
These people would include high net worth individuals, institutional money managers and sophisticated investors who know what they are doing. Not so on Robinhood - all you need is to download the app, deposit $1 to open an account, and you become a trader.
The price of silver, which had reached an eight-year high on Monday after benefiting from the interest of budding investors, was down too.
The Federal Reserve's accommodating policies like low interest rates have flooded the markets with liquidity, and the United States government's stimulus measures allowed a substantial amount of money to circulate on the stock market.
Any pullback in GameStop shares could expose investors to losses, especially if they bought the stock at recent highs, or on margin, or using options trading strategies.
"They get to buy back those stocks and they get to keep the difference and pay back the original stock and so really they get to keep that difference".
Robinhood and other brokerages rely on clearing agents to complete the backend process of equity transactions which take 48 hours. United Kingdom investors should take care when trading shares in highly volatile market conditions that they fully understand the risks they are taking. Robinhood has raised $3.4 billion in the last few days for that goal.
The online army of Reddit traders have banded together for the past week to pour money into out-of-favour companies such as GameStop and AMC.
"Robinhood has a responsibility to treat its investors honestly and fairly, and provide them with access to the market under a transparent and consistent set of rules", she added.