Please ensure Javascript is enabled for purposes of website accessibility

Robinhood Forced to Raise Another $2.4 Billion Despite Limiting GameStop Trades

By Rich Duprey - Feb 1, 2021 at 2:08PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Unprecedented demand has massively increased the mobile trading platform's capital requirements.

Mobile trading app Robinhood had to go to the well of financial support from its backers once again as persistent trading in some of the most volatile stocks on the market forced the company to meet increased demands for cash.

While shares of GameStop (GME 6.81%) took a breather today from their frenzied run higher, falling 20% in midday trading after the online brokerage imposed severe restrictions on share purchases, Robinhood was still forced to raise $2.4 billion to be able to ride out the storm.

Suitcase full of $100 bills

Image source: Getty Images.

Demand beyond compare

Stock traders on Reddit have been in a contest of wills with hedge funds that massively shorted GameStop and other troubled issues, such as AMC Entertainment Holdings (AMC 17.99%). In the middle were brokerage houses like Robinhood that facilitate the buying and selling of the stock.

Because of the app's popularity, and with the trading onslaught that ensued as the battle became one of a populist investing uprising against Wall Street insiders, Robinhood's capital requirements with stock trade clearinghouses soared.

The platform was forced to raise $1 billion last week to meet the demands, though CEO Vlad Tenev said at the time it was a precautionary measure and Robinhood was not suffering financial difficulties. It also bought some breathing room by prohibiting all purchases of stocks like GameStop and AMC. Investors could only sell.

The hue and cry that followed, however, forced Robinhood to backtrack, but it came up with a plan to limit the amount of stock a user could buy. The most restrictive conditions were imposed on GameStop shares, for which users could only buy one share and five options contracts.

Whether the plan works remains to be seen, because as boxing legend Mike Tyson once noted, "Everyone has a plan until they get punched in the mouth."


Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

GameStop Corp. Stock Quote
GameStop Corp.
$137.21 (6.81%) $8.75
AMC Entertainment Holdings, Inc. Stock Quote
AMC Entertainment Holdings, Inc.
$14.43 (17.99%) $2.20

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/27/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.