Australian investors hit by GameStop trading restrictions

GameStop Australian investors trading restrictions IG Markets Robinhood Reddit SEC

Australian investors in popular stocks mentioned on the subreddit WallStreetBets have now been hit by trading restrictions on local trading platforms.

Major CFD and local and offshore broking platform IG Markets has now closed off any new investments in the biggest short squeeze stocks in the US – GamesStop and AMC Entertainment.

That mirrors the controversial action of several US brokerages, including Robinhood and Interactive Brokers, which heavily restricted trade in 13 individual stocks that were subject to WallStreetBets activities.

IG tells clients they can sell but not buy

In a note to Australian clients who already hold the popular “Reddit rally’’ short squeeze stocks GameStop and AMC Entertainment, IG Markets said it would allow clients to sell out of their positions but not to buy any new shares.

“Due to recent extreme volatility, and in order to prioritise the service we give our existing clients, we are not allowing any new position to be opened on the US stocks GameStop and AMC Entertainment,’’ the note said.

“These restrictions apply to all IG accounts, and will be reviewed regularly.

“You will still be able to close any open positions that you have in these stocks. Any orders that you have already placed on these two stocks will remain.’’

Margins raised to 100% to discourage GameStop and AMC positions

In an additional blow to Australian investors who have been taking part in the trade that has pitted millennial investors against hedge funds that had short sold shares in GameStop and AMC Entertainment, IG has also increased the margin on trades in the two companies to 100%.

That means that even Australian investors who have already bought these two shares could be forced to pump more money into their accounts just to keep them, depending on the amount of leverage they have in their accounts and how exposed they are to GameStop and AMC.

IG says no new positions

On its website, IG Markets said: “In order to prioritise the service we give our existing clients, IG is not currently allowing any new positions to be opened on the US stocks GameStop and AMC Entertainment.

“Clients are still able to close existing positions.

“We continue to see high volatility in these and other stocks and positions may be subject to margin changes at short notice. High volatility increases the risk of sudden, large or rapid losses.’’

Discount online broker Stake which gives Australian’s low-cost access to US stocks also suffered some service problems due to the trading frenzy.

However, while there were some delays to fund transfers and some market orders were cancelled, Stake was working over the weekend to get its platform back to functioning normally.

The Australian trading restrictions are part of a global phenomenon as online broking platforms are hit by international restrictions.

London based commission-free trading platform Freetrade said it had disabled buy orders for US stocks due to an unexpected decision from its foreign exchange provider and their bank to limit trade volumes.

Robinhood eases restrictions slightly

Following massive outrage after its decision to disable buying but allow selling on a long list of Reddit stocks last week, Robinhood has eased some restrictions for US investors.

However, it is still not allowing purchases of fractional shares in GameStop and 12 other companies, meaning smaller investors must deposit more cash to buy more shares.

Robinhood is also maintaining numerical limits on the number of shares any one account can hold in each of the companies, effectively stopping traders from increasing their successful trades.

Robinhood claims its hand has been forced by the surge in market volatility.

Financial markets feeling the turmoil

The Reddit rally has caused unprecedented waves in financial markets with hedge funds now selling down many large stocks to make up for losses in their short selling.

Despite the action by Robinhood and others, GameStop shares have remained resilient, trading above US$380 last Friday.

Others Reddit short squeeze stocks such as AMC Entertainment, Bed Bath & Beyond and Blackberry have renewed their rise and silver has been rallying very strongly.

Some US politicians and regulators were outraged by the restrictions on buying shares.

The SEC issued a rare joint statement from its acting chair and commissioners, saying it was working closely with other regulators and stock exchanges “to protect investors and to identify and pursue potential wrongdoing”.

It said it would “closely review actions … that may disadvantage investors” or hinder their ability to trade stocks.

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