Please ensure Javascript is enabled for purposes of website accessibility

As Frenzy Subsides, Robinhood Tweaks Rules Again to Raise GameStop Share Limit to 20

By Rich Duprey - Feb 2, 2021 at 9:07AM

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

As the short squeeze eases, expect further increases in purchase amounts.

Traders can finally buy more GameStop (GME 29.19%) stock again after the mobile trading platform Robinhood raised its limit again yesterday, increasing the amount to 20 shares and 20 options contracts. Buying fractional shares of the video game retailer, however, is still prohibited.

We're likely to see those limits increased further as the big rally in GameStop is probably over after short interest in the stock plunged to just 39%. While still high, there's probably enough liquidity in its shares to allow remaining shorts to cover their position if they choose to.

Great white shark breaching the water

Image source: Getty Images.

Feeding frenzy burning out

Robinhood faced investor backlash for its actions during the rally after it first banned buying GameStop stock and then permitted purchases of just one share

While the popular app did raise the threshold, it also kept in place limits on aggregate ownership, meaning an investor who already owns 20 or more shares of GameStop won't be able to buy more.

Robinhood also raised the thresholds of other volatile stocks that were similarly restricted (though not nearly as severely as GameStop) such as AMC Entertainment Holdings and Express.

The company was forced to raise over $3.4 billion from its financial backers to help it meet its capital needs during the stock-buying frenzy. Stock clearinghouses demanded the app increase its reserves in case there were substantial losses by investors, and it is reportedly looking to raise an additional $1 billion.

The later you are in this game with GameStop, the greater the risk of loss you assume. The earliest players made the most money, while those who follow, particularly now as the short squeeze gets long in the tooth, stand to lose their entire investment.

The buy limits Robinhood imposed may have ultimately prevented traders from suffering substantial losses.

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.
GME
$115.17 (29.19%) $26.02
Express, Inc. Stock Quote
Express, Inc.
EXPR
$2.54 (6.72%) $0.16
AMC Entertainment Holdings, Inc. Stock Quote
AMC Entertainment Holdings, Inc.
AMC
$11.88 (14.34%) $1.49

*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
322%
 
S&P 500 Returns
116%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/26/2022.

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.