What happened
Many previously high-flying stocks saw their prices crash on Thursday after brokerages took action to curb trading in their shares.
Here are some of the day's biggest drops:
- BlackBerry (BB +6.96%), down 41%
- Genius Brands (GNUS +2.02%), down 36%
- Nokia (NOK 1.71%), down 29%
- iRobot (IRBT +0.00%), down 24%
- Eastman Kodak (KODK +2.91%), down 18%
- Macy's (M +2.80%), down 13%
So what
In recent weeks, traders have worked together to drive up the prices of a host of stocks. Bulls have gathered on sites like Reddit to identify potential targets and coordinate their purchases.
Many of these stocks are heavily shorted, which makes them prone to short squeezes. That's part of the allure. The traders buying them are hoping to force short-sellers to close their positions, which can accelerate a stock's price gains and heighten the trading frenzy.
Some of these stocks, such as Nokia, are actually not highly shorted. Traders, however, have used similar tactics in an attempt to boost their share prices.
Image source: Getty Images.
On Thursday, trading platforms like Robinhood, TD Ameritrade, and Interactive Brokers placed restrictions on how some of these stocks could be traded. That made it more difficult for the bulls to continue to push up their share prices. Many of these stocks quickly reversed course.
Now what
The move to limit trading in certain stocks drew heated criticism from investors and lawmakers. Robinhood appears to have backtracked a bit by saying that it will "allow limited buys" of the stocks on which it imposed trading restrictions beginning tomorrow. It's possible traders will attempt to drive up the prices of some of these stocks once again.
For most investors, however, this is a dangerous game to play. There are far safer ways to build wealth in the stock market without placing your hard-earned money at such great risk.
