“Amid significant market volatility, it’s important as ever that we help customers stay informed,” Robinhood added.
“This was a risk-management decision, and was not made on the direction of the market makers we route to,” Robinhood said in a blog post. “We’re beginning to open up trading for some of these securities in a responsible manner.”
The problem is that a short seller can be hurt if the stock they borrowed keeps climbing. The losses, in theory, are infinite. So that creates another buying frenzy as short sellers rush to buy back the stock before it moves even higher.
The big concern is that average investors may be ignoring longer-term risks about GameStop as they look for a quick short-term pop.
“GameStop shares are trading completely untethered from fundamentals and that is dangerous,” David Trainer, CEO of New Constructs, an investment research firm, said in an email to CNN Business.