Robinhood halts trading of GameStop and other heavily shorted stocks as hedge funds suffer

(Image credit: Spencer Platt/Getty Images)

Robinhood should consider changing its name to the Sheriff of Nottingham.

The past two days have turned Wall Street on its head as Reddit users colluded to buy massive amounts of GameStop stock, with the explicit aim of hurting hedge funds that profit off shorting the typically falling stock. A lot of that GameStop trading happened on Robinhood, a free app that allows people to trade small amounts of stocks. But on Thursday, Robinhood decided to betray its name and halt purchases of GameStop stock, as well as stock from other nostalgic companies.

Robinhood said in a Thursday blog post that after "recent volatility," it wasn't allowing the purchase of new stock from GameStop, AMC, BlackBerry, Bed Bath and Beyond, Koss headphones, and Nokia, as well as Naked Brands, which may have gotten caught up in the shutdown after a Wednesday direct offering campaign. Robinhood also raised margin requirements for some securities, meaning users have to front more of their own money to buy the securities, ostensibly benefiting those with more cash. TD Ameritrade and Charles Schwab also increased margin requirements for GameStop stock on Wednesday.

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Robinhood has framed the decision as a way to "help our customers navigate this uncertainty" in its blog post. The Verge meanwhile noted one hedge fund suffering amid the GameStop surge was Melvin Capital Management, which another hedge fund, Citadel, has since bailed out. Citadel's founder is Ken Griffin, who also founded Citadel Securities, a firm that partners with Robinhood to execute orders that also works with TD Ameritrade and Charles Schwab. Robinhood co-founder Vlad Tenev later denied making the company's decision "on the direction of any market maker we route to or other market participants."

While Robinhood's everyday users may be blocked from trading these newly booming stocks, they were able to exact revenge against the app with a wave of one-star Google app store reviews. Kathryn Krawczyk

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Editor's note: This post was updated to clarify Citadel Securities' relationship with Robinhood.

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