Stock trading app Robinhood tampers with market amidst Gamestop frenzy

Japhy Barrera, is a member of the YCL’s Birmingham branch

On Thursday, American stock trading app Robinhood halted buying into several firms including Gamestop and AMC Cinemas who had seen exponential investment in recent weeks. The app stated that the high rates of investment were causing ‘market volatility’ that necessitated their interference.

Robinhood, named in order to present a working-class image, has become wildly popular in recent years for making stock trading accessible. Young people all across the U.S. have been investing using the user-friendly app.

The recent developments occurred after Reddit forum ‘WallStreetBets’ formulated a plan to manipulate the market: to invest in weak and declining stocks. If all of the members of the forum invested in congregate, the stock would rise and they would all make money, but there was another part to this plot. 

With the decline of stocks from Gamestop, AMC, and alike due to the COVID-19 or otherwise, U.S. hedge funds invested heavily in ‘shorts’. Short selling, simply put, is when you borrow stock from a broker and then sell it immediately at its current price. The borrower is then banking on the stock price going down, whereupon they can buy the stock at the lowered price to return it to the broker. Profit is made on the difference between the originally sold price and the bought one. 

It’s essentially betting on a stock price going down, which was considered the safe move for hedge funds in failing business like Gamestop and AMC. As the stock price of the firms declined, the hedge funds profited. 

The people on ‘WallStreetBets’ sought to exploit this. They invested in the previously falling stocks in large numbers, raising the stock price and making the hedge funds lose money on their shorts. The hedge funds had to buy the stock back to return to the brokers at the higher price, further boosting the stock; this is called a short squeeze.

Everything had been going according to plan on Thursday night, with Gamestop shares reaching a high of $469 after being less than $40 the previous week. This was until Robinhood banned trading of the climbing stocks on their platform, causing the affected shares to plummet. On top of this, Robinhood started selling people’s stocks without their permission in an attempt to restore ‘market stability’. 

Robinhood, a platform that has marketed itself on the idea of ‘democratizing finance for all’, has interfered just as regular people started to get a leg up on the establishment. 

Several hedge funds with short positions on the affected stocks found themselves on the brink of bankruptcy. Subsequently, the app undoubtedly came under pressure of the U.S. government and their accompanying corporate lobbyists to intrude on the trading.

These events have illuminated the reality behind the facade of ‘free-market’ rhetoric. The neoliberal state apparatus does not care that the market is free if that market freedom is not coming to the benefit of corporations. Companies like Robinhood act as false prophets, giving working people the idea that if they just invest correctly, they too can be rich.

It is becoming increasingly clear that there are two separate sets of rules for capitalists and workers. When multi-billion dollar financial institutions manipulate markets they are rewarded with cultural idolization and praise. They are considered savvy and ingenious even if their actions are manipulative, exploitative, and contradict the common good.

As working people start to gain ground through investment, the financial and corporate establishments coalesce to stop it at any cost.

Following Robinhood’s statement defending their intervention, one Twitter user responds, “How about you stop pulling this commie BS and let people do what they want like you advertised.” This put an all too pervasive western mentality on display. The corporate greed and desperation being exhibited are not representative of communism, but rather of the current state of affairs under late-stage capitalism. This misrepresentation plays right into the hands of the corporate bodies it attempts to slander.

A worrying takeaway from the Robinhood scandal is one in desire of freer markets. This rhetoric is unquestionably going to be weaponised by right-wingers to justify even more corporate deregulation.

If there is a takeaway it must be one of discovery and exposure. That the system in which we reside is actually rigged against the common person rather than configured to help them. The accumulation of private capital in few hands allows those few to tamper with the political economy in any way they please.

‘Democratizing finance’ cannot and will not come through attempts at investment in a rigged market. It can only come through the complete rendering of capital into the public sphere, a state of affairs that is becoming increasingly inevitable as the pillars and facades of capitalism begin to decay.

Japhy Barrera

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