Robinhood, a popular trading and investment app is receiving significant backlash from its users lately. So much so that its ratings on the Google Play store has plummeted to one star.
The reason for Robinhood’s sudden decline comes after its decision to place restrictions on GameStop, AMC, BlackBerry, Express, Nokia, and others on Thursday.
In a recent blog post, Robinhood said it was restricting trading on the stocks “in light of recent volatility”.
The volatility here refers to the recent chaos caused by Reddit traders in Wall Street.
It all started with the subreddit r/wallstreetbets (also known as WallStreetBets or WSB, is a subreddit where participants discuss stock and option trading). The subreddit is pretty much self-explanatory: a forum where amateur, hobbyist investors discuss plans for successful trading and investments.
Just a few weeks ago a Redditor from the forum noticed that a hedge fund has taken a massive amount of short trades against GameStop. Meaning, the hedge fund was betting against GameStop, which is just a chain of stores that sell products that are already available online. As a result, GameStop’s business was on the verge of collapse.
The recent buzz about GameStop’s decline spurred the hedge fund company Melvin Capital Management to buy the company’s stocks. As GameStop’s stocks fall, Melvin Capital and other traders would rake in millions through short selling.
This infuriated the Redditors, as they banded together to convince everyone to buy as much GameStop stock as possible. Between January 20 and January 26, GameStop’s stock value leaped from over $35 per share to north of $140 per share. By Jan 27, it reached new highs of over $325 per share - a more than 8000% increase from just a few months earlier.
As GameStop’s stock price rose even higher, the short position of Melvin Capital made them lose billions. Its losses eventually surpassed its own net worth, which is just over $13 billion leading them to declare bankruptcy.
The sudden increase of GameStop’s valuation is due to r/wallstreetbets forum which rallied over 2 million users to increase the price of GameStop’s stock. Many of the users who were involved in these transactions turned to consumer-friendly stock trading apps like Robinhood.
Robinhood, saw its best user numbers and downloads on Thursday as it ranked number one on Apple’s iPhone and iPad App Store. With more than 120,000 downloads, Robinhood tripled its daily download numbers within a day.
However, Robinhood soon pulled the ability for users to trade in GameStop. The restriction was applied to other companies like AMC, BlackBerry, Bed Bath & Beyond, Express, Koss, Naked Brand, and Nokia.
Robinhood framed the decision as a way to help customers navigate uncertain times. But while Robinhood’s everyday users may be blocked from trading these stocks, they were able to exact revenge against the company with a wave of one-star Google app store reviews.