The cryptocurrency-friendly platform Robinhood has found itself at the centre of a financial scandal that threatens to reshape Wall Street’s market practices. The situation surrounding the shares of GameStop and AMC Entertainment, hedge funds, and the Reddit community on the platform has already drawn the attention of the U.S. Congress.<\/p>\n
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On 29 November 2020, a member of the r\/WallStreetBets subreddit disclosed that the hedge fund Melvin Capital had short positions in GameStop (GME) shares. Subsequently, users decided to buy these shares to prevent the big players from dragging the company under.<\/p>\n
On December 1, the price of GME was around $16, but from January 12 it began to rise sharply. The peak came on January 27, when the price on the New York Stock Exchange hit $347. By the time of writing, GME was trading at about $193.60.<\/p>\n
The pump of GameStop shares proved costly for Melvin Capital. According to the Wall Street Journal<\/a>, as of January 25 the fund had lost 30% of its capital. It was supported by market maker Citadel and hedge fund Point 72 Asset Management with $2.7 billion. The total losses of short sellers on GME this month are estimated at more than $19.75 billion.<\/a><\/p>\n Citadel is closely tied to the Robinhood mobile platform. In June, according to Financial Times<\/a>, the platform’s marketing subsidiary accounted for more than 35% of Robinhood’s income. The same platform was used by many r\/WallStreetBets participants to purchase GameStop shares.<\/p>\n On January 28, Robinhood restricted trading in several assets, including GME and AMC.<\/p>\n In light of current market volatility, we are restricting transactions for certain securities to position closing only, including $AMC<\/a> and $GME<\/a>. Read more here.https:\/\/t.co\/CdJMjGAeFH<\/a><\/p>\n \u2014 Robinhood (@RobinhoodApp) January 28, 2021<\/a><\/p>\n<\/blockquote>\n\n