Robinhood Freezes trading in GameStop
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Can someone please explain this to me? Thanks.
https://www.cnbc.com/2021/01/28/gamestop-cruz-ocasio-cortez-blast-robinhood-over-trade-freeze.html
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@my4mainecoons Some institutions were shorting GameStop and the way shorting works is you borrow the stock, sell it, and then when the price goes down you buy it back and return it. The problem is if the stock goes up - your losses are unlimited.
So a bunch of people on reddit decided to screw the investors on wallstreet and keep buying up the stock, driving the price through the roof.
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1 Reply
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@dangeruss I still don’t understand. I’ve never heard of borrowing stock.
Let’s say Target is selling widgets. Target lends me widgets? I sell the widgets to my neighbors.
Then the price Target is selling them for goes down.
So I ask my neighbors to return them to me and I give them their money back?
Who am I returning them to? If Target loaned them to me I didn’t pay for them so why would they give me money back?
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@my4mainecoons said in Robinhood Freezes trading in GameStop:
Then the price Target is selling them for goes down.
So I ask my neighbors to return them to me and I give them their money back?
Who am I returning them to? If Target loaned them to me I didn’t pay for them so why would they give me money back?You would buy the widgets once the price goes down and return them using the old receipt.
Of course this doesn’t really explain how all this stuff works, but here’s a thread that hopefully explains some of it:
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Robinhood, while they made a really bad decision, hopefully saved a lot of people from financial disaster. Good old principle never seems to fail, “buy on the rumor and sell on the news”. So when most people got the news, the were fodder for the early guys.
Few people might have jumped in late and made money on the volatility - but that is like crapshoot - they could have lost it too - I have seen the market turn with no news on some securities and then not recover.