The Robinhood online trading platform is moving to block trading in some stocks that have recently soared due to smaller investors’ aggressive purchases.
As a voluntary army of investors on social media challenged large institutions that had placed market bets that the stock would fall, GameStop stock rose from below $20 earlier this month to more than $400 on Thursday.
On Thursday, Robinhood announced the constraints that investors would only be able to sell their positions and not open new ones in some cases, and they would try to slow down the amount of trading with borrowed money.
Besides GameStop, the company said other stocks such as AMC Entertainment, Bed Bath & Beyond, BlackBerry, Nokia, Express Inc., Koss Corp., and Naked Brand Group would be affected by the new restrictions.
Large institutions like Citron Research and Melvin Capital made bets that the GameStop shares would drop as the company attempts to transform itself from an in-store retailer to an online video game seller.
Small investors, however, decided to join the stock. Buying stock increases the price, which forces the big players to cover their bets, increasing the price even more.
The stated objective of Robinhood is to “democratize” investment and bring in investment by more regular individuals. But the company has run afoul of regulators who say that the company minimizes trading risks. Robinhood says it is making moves to better educate its users about those hazards.