Keweenaw Report Your Source for Local News and Sports
There is an old maxim that if something is being offered for free, the product isn’t a social media service like Facebook or Twitter, it’s actually you. That old saw has found its way to the forefront in many privacy debates over the past decade. It has now made its way to Wall Street.
On Thursday several brokerages took the unprecedented step of halting buying for stocks like GameStop, Nokia, Blackberry, and AMC Theatres. Several large hedge funds had been caught in extreme short positions, betting against those companies. When a Reddit community called WallStreetBets helped to coordinate targeted buying of those shares, a short squeeze ensued. The price took off and many of the hedge funds doubled and tripled down on their positions. The price kept rising and cumulative losses are estimated into the tens of billions for several large Wall Street titans.
Associate Professor of Finance at Michigan Tech, Heather Knewtson, says last week’s events were clarifying for a lot of people as it exposed a flaw in the movement to “democratize” trading.
Charles Schwab, TD Ameritrade, and Interactive Brokers were other firms who limited stock purchases. All three offer low commissions on trades, generally seen as a boon for smaller investors, but it can leave the firms vulnerable to unforeseen shocks. In the stock market, those are almost a certainty over a long enough period of time.
Robin Hood was expecting to complete an initial public offering this year, the process in which a company begins trading publicly. Now it is the subject of multiple class action lawsuits and in a fight for its very survival.
