A full recap of the historic retail craze on Wall Avenue

GameStop mania took Wall Street by storm thanks to a legion of retailers taped on the WallStreetBets message board on Reddit.

The struggling stationary video game retailer’s shares rose 400% over the past week, closing January a whopping 1,625%. A group of amateur traders on the WallStreetBets forum, whose membership tripled to 6.5 million in just one week, wanted to unearth sharply truncated stocks “to the moon,” resulting in massive short bruises some believe they are Caused turbulence in the broader market.

The rally failed on Robinhood, the free trade pioneer and popular app. The fledgling broker looking to go public this year had to develop lines of credit, raise new funds, and curb trading on a list of short squeeze names. We learned why on Saturday morning in a new post from Robinhood, and the broker stated that the central clearinghouse on Wall Street required the company’s deposit requirements to be increased ten times a week to keep it smoothly running on trades in securities with unprecedented volatility to guarantee .

The reckless retail spending spree drew the attention of high profile investors like Elon Musk and Chamath Palihapitiya, as well as a number of lawmakers who urged regulators to step in.

This is how the mania developed over the past week:

Monday

The quick and furious action started on Monday when GameStop shares more than doubled and turned red within two hours. The stock eventually closed 18% higher after several trading stops during the day.

The extreme loudness of the name raised eyebrows as well. GameStop traded more than any other S&P 500 stock on Monday.

Enthusiastic day traders on Reddit pushed each other to further double GameStop. A top post on Monday said, “I won’t sell this until at least $ 1000 + GME.”

The struggling game dealer is a popular short sight on Wall Street. In fact, according to FactSet, more than 130% of float stocks had been borrowed and sold short, one of the most shortened names in the US stock market. Retailers earlier that month realized they could create an artificial bang in the name if enough of them bought, forcing hedge funds betting against the stock to recoup their losses by buying back the stocks themselves. The squeeze game began to intensify.

“Chasing the squeeze is like buying a lottery ticket,” said Lindsey Bell, chief investment strategist at Ally Invest, in a note. “You could profit, but you could also lose everything. This type of speculative trading is more about luck and less about skill.”

A protester holds up a sign reading Robin Crook in front of the New York Stock Exchange on January 28, 2021.

John Lamparski | SOPA pictures | Sipa USA via AP Images

Tuesday

The rally gained momentum Tuesday after Social Capital’s Palihapitiya said in a tweet that he bought GameStop call options and bet that the stock would go higher. GameStop’s shares rose to nearly $ 150 on Tuesday.

Tesla CEO Musk also got involved in the phenomenon on Twitter and was linked to the WallStreetBets message board. He tweeted “Gamestonk !!” to his 42 million followers.

Reddit users continued to show off their massive earnings from trading GameStop. One trending post included a screenshot of the user’s brokerage account with a return of over 1,000% on the stock.

Wednesday

By the middle of the week everyone was talking about GameStop.

CNBC’s Andrew Ross Sorkin reported that Melvin Capital closed its short position in the stock Tuesday afternoon after a large loss. Citadel and Point72 had to invest nearly $ 3 billion in the hedge fund to support its finances.

As GameStop continued to skyrocket, other heavily shortened names with troubled companies – like AMC Entertainment and Bed Bath & Beyond – got into the Reddit-fueled frenzy.

AMC rose 300% on Wednesday alone, with more than a billion shares changing hands on their highest-volume day of all time. Bed Bath & Beyond was up 43% on Wednesday, while Koss was up 480% that day.

The Reddit forum also went private for a short Wednesday night as moderators said they could “not ensure Reddit’s content policy”.

Thursday

GameStop fell 44% on Thursday, falling for the first time in six days as Robinhood and Interactive Brokers restricted trading to close positions in several of the heavily shortened names, meaning traders couldn’t buy stocks when prices fell.

Robinhood and Interactive Brokers also increased their margin requirements on trades, making it more difficult for traders to use leverage to load stocks and options. Other brokers also increased the margin requirements.

Other speculative names with high short interest, including AMC Entertainment, Blackberry, and Bed Bath & Beyond, also fell sharply.

The decision of Robinhood, which has presented itself as the free trade friend of the small investor, has led to a backlash with its customers expressing their indignation on social media.

It also drew scrutiny from political officials from both sides of the aisle. Alexandria Ocasio-Cortez, MP, spoke on Twitter and described Robinhood’s new parameters as “unacceptable”.

Republican Senator Ted Cruz tweeted “totally okay” in response to Ocasio-Cortez.

Robinhood CEO Vlad Tenev came to CNBC Thursday night to say that he had taken these unusual measures to allow the broker to continue to meet the increasing deposit requirements and denied this due to liquidity issues.

“In order to protect the company and our customers, we had to restrict the purchase of these stocks,” Tenev told CNBC.

We would learn later how much these deposit requirements have increased for the broker. Robinhood said the mandatory deposit requirements increased tenfold over the week. Robinhood clears its business through its clearing broker Robinhood Securities, which, along with others, is a member of a central clearing house on Wall Street. This clearing house ensures that transactions are processed properly, a process that takes two days. For a stock that rises 100% and falls 40% in one-on-one sessions, two days becomes a much riskier time period and more collateral is required under clearinghouse rules.

“It wasn’t because we wanted to stop people from buying these stocks,” Robinhood stated in the Post on Saturday. “We did this because the amount we needed to deposit into the clearing house was so high – with individual volatile securities that had deposit requirements of hundreds of millions of dollars – that we had to take steps to make the purchase to limit these volatile securities to ensure this could comfortably meet our requirements. “

Friday

Robinhood raised $ 1 billion from investors overnight and used lines of credit to ensure these requirements can be met.

GameStop’s shares rose again on Friday as Robinhood said limited trading in these highly volatile names would resume.

CNBC’s Jim Cramer begged GameStop owners to take profits.

“Don’t go to the Grand Slam. Take the home run. You’ve already won,” Cramer said.

The speculative stocks gave back some of their profits after Robinhood tightened restrictions later in the day so customers could only buy a single share of GameStop. The stock trading app also expanded its list of restricted stocks from 13 earlier in the day to 50.

GameStop, which had doubled the previous Friday, was trading from its highs. It would bounce back by the end and gain more than 67% on Friday

The Securities and Exchange Commission announced on Friday that it is reviewing the recent trading volatility that has caused GameStop and AMC to surge.

“We will act to protect private investors when the facts show abusive or manipulative trading activity,” the SEC said in a press release. The regulator also undertook to curb brokerage transactions that may “unduly” restrict customers’ ability to trade.

Short seller not done

Amid the soaring GameStop stock, short sellers have lost nearly $ 20 billion this month. However, they show no signs of surrender.

Hedge fund short sales have for the most part held onto their declining positions or are being replaced by players willing to bet against the stock.

Most on Wall Street agree that GameStop trading will soon end very badly for the long-running retailers. Hopefully the frenzy will lead to hard lessons and an ongoing interest in investing.

“The fact that more people are interested in the market and more people are thinking about investing is a good thing,” said Michael Katz, partner at Seven Points Capital. “You just have to make sure they are educated and that they are monitoring what they are doing, and not just buying into the hype.”

– CNBC’s Nate Rattner contributed to this story.

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