Infamous Robinhood Adds Over $1billion to Emergency Fund

The now infamous mobile trading application Robinhood is reported to have added over $1 billion to its emergency fund. Robinhood became caught in the middle of the still-ongoing “stocks war” between Reddit traders and Wall Street Hedge funds.

According to a report by the New York Times, Robinhood opened a credit line of $500-$600 million with six banks. The trading platform also approached its existing investors for more cash, including Ribbit Capital and Sequoia Capital.

WSB Bleeds Out  Hedge Funds on Robinhood

Robinhood found itself in the crosshairs when retail traders on Wall Street Bets subreddit decided to bet against hedge funds. The row primarily involves Gamestock stocks, on which many professional traders on Wall Street had open short positions. The retailers decided to band together and buy all GME stock (GME) to force the hedge funds out of their positions.

At one point in January, GME stocks, which retailed for about $2.57 per share rose by 18,700% to $483. The rise also represents a $1,600% increase in the past month alone.

Multiple hedge funds became liquidated and lost billions as traders flocked to buy and hold their GME shares on Robinhood.  Melvin Capital lost over 53% of its portfolio and an additional $3 billion extension from Citadel and Point 72.

However, once hedge funds started to lose money due to the short squeeze, Robinhood stopped traders from buying GME stocks.  Robin CEO Vladmir Tenev wrote on Twitter:

“We plan to allow limited buys of these securities. We’ll continue to monitor the situation and make adjustments as needed.”

The decision has been met with heavy criticism, with many financial analysts saying it is highly illegal. In fact, a class action lawsuit against Robinhood was filed by a Massachusetts-based trader Brendon Nelson for blocking traders.

Popular day time trader, David Portnoy said that everyone involved in limiting GME trading should go to jail. This includes Robinhood’s CEO Vladmir Tenev , Citadel’s founder  Ken Griffin and Majority owner at New York Mets, Steven Cohen.

Other Platforms  Reacted like Robinhood.

WSB traders seem to be doing their due diligence in singling out heavily shorted stocks. The group also went after hedge funds who shorted mostly AMC Networks, BlackBerry, and Nokia stocks. WSB now has attracted a flood of new members and currently has over 7 million people in the subreddit.

Once the Robinhood news caught the attention and participation of international traders, other trading platforms decided to impose restrictions. Trading 212 and interactive brokers limited trading to stop international traders from jumping into the frenzy.

Robinhood  was previously popular for charging a zero commission fee and simplifying trading for many financially illiterate traders.