In the new digital age, the world of financial markets can be accessed easily with the help of mobile apps and digital brokerage companies. Robinhood, one of these investment apps, pioneered pathways for the average person’s venture into stock trading and investment opportunities, according to Business Insider.
Until recently, there was minimal discourse between brokerage companies and the average person, but this all changed late January.
The online forum and self-proclaimed “front page of the internet,” Reddit, gained international recognition after members of the subreddit WallStreetBets rallied behind dying companies, specifically GameStop, Nokia and AMC Entertainment, to counter a practice called shorting.
In response to this, Robinhood limited users from purchasing GameStop, Nokia and AMC shares altogether.
“I think the way Robinhood acted is downright criminal,” said Riley Gray, junior in pre-pharmacy. “I don’t want to posit any of my own theories, but it is absolutely suspicious that GameStop would be targeted by this, and it was effectively what killed all momentum for the surge.”
This surge was made possible because several large investment funds shorted GameStop’s stock. To short a stock, investors borrow shares at a low cost and sell them at the current market price, anticipating a price decline. Then, once the stock price goes down, they rebuy the stocks at the new lower price and return them to the broker, profiting off the price decline.
Small-dollar retail investors were able to foil this method by buying large amounts of shares of these shorted companies, causing the stock price of GameStop to go from $37 a share on Jan. 21 to $483 on Jan. 28.
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Although he lacks an educational tie with economics, Gray disagreed with Robinhood’s decision to limit the trading of certain stocks.
“I don’t have a background in economics, but the importance of investing was always instilled into me by those around me,” Gray said.
Gray recalled his initial introduction to the world of investing long before the GameStop mania.
“The first thing I truly invested in was some eBay call options, but I held onto them too long instead of taking my profit and ended up losing money,” Gray said. “It taught me that you should always take some profit even if you think you 100% will get a return on investment because you can’t ever control all the factors surrounding your investments.”
After learning this lesson the hard way, Gray said he erred on the side of caution when exploring new investment ventures.
“I first heard about the GameStop situation about a week or two before it hit major media outlets,” Gray said.
After learning specific details explaining what was about to happen, Gray decided to join the cause and purchase shares of GameStop himself.
Kenneth Talyor, junior in business analytics, suggested using a different broker than Robinhood in light of the company’s recent decisions.
“Robinhood isn’t the worst platform, but I’d suggest looking online and finding brokers that are more transparent in their business dealings,” Talyor said.
Some believe Robinhood’s actions reflect a skewed and unfair manipulation of the market.
“This response did mitigate [the] risk of the hedge funds but underscored the hopeful idea of the stock market being used by everyday Americans,” Talyor said. “When the big corporations begin to lose at their own game then strings are pulled to bail them out. I lost over a hundred bucks after Robinhood froze Nokia as a result.”
Investing can be daunting to those who are not familiar with the industry, and Talyor said he understands that some may have reservations.
“Not everyone is Warren Buffet, so you will have both ups and downs, but experience has to start somewhere,” Talyor said. “Investing forums are your friends, but doing your own research to back up any recommendations is key to risk management.”
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