IG notes increased volatility in certain stocks, including GameStop and AMC
Online trading major IG has published a notice on its website, warning of increased market volatility.
The online broker notes that it is currently seeing increased volatility in certain stocks, including GameStop and AMC. This increases the risk of sudden, large or rapid loss and the potential for gaps, where stocks fall dramatically when the market opens.
IG stresses that it does not offer options on Gamestock or AMC Entertainment, or the ability to short these stocks. Only spread betting, CFD trades or share dealing are available on IG’s platform.
As Chris Beauchamp, IG’s Chief Market Analyst, explains,
“The activity in these stocks has been confined to a small part of the market, with normal price action continuing in the vast majority of stocks. It will command plenty of attention in the media, and the excitement will undoubtedly provide an attraction for many traders, but sometimes it is better to watch from afar rather than attempt to jump in to such a volatile situation”.
GameStop has seen its market value rise very rapidly, as retail traders, coordinating via the website Reddit, have bought into the stock using options, forcing the hedge funds that have taken short positions in it to close out their trades, pushing the stock yet higher.
While GameStop, and others that have been heavily shorted, has enjoyed a huge rally, this does not mean that continued gains are guaranteed, IG says, adding that the future of any trade is always uncertain, and after such a huge ride there may be many investors, of all types, who still think that the shares are overvalued, and will look to short them once again. Regardless of whether an investor trades long or short, they must make sure that they have a clear risk management plan in place, with stop levels clearly defined, the company notes.
The swings in the share price of GameStop have had heavy consequences for Robinhood. Faced with a wave of discontent and criticism, Robinhood has backtracked from the restrictions on trading certain stocks introduced on January 28, 2021, amid extraordinary market volatility.
On Thursday, the company said it was restricting transactions for certain securities to position closing only, including $AMC, $BB, $BBBY, $EXPR, $GME, $KOSS, $NAKD and $NOK. Robinhood also raised margin requirements for certain securities.
Several hours later, Robinhood had to defend its actions. The company said:
“As a brokerage firm, we have many financial requirements, including SEC net capital obligations and clearinghouse deposits. Some of these requirements fluctuate based on volatility in the markets and can be substantial in the current environment. These requirements exist to protect investors and the markets and we take our responsibilities to comply with them seriously, including through the measures we have taken today”.
Starting Friday, Robinhood plans to allow limited buys of these securities. The company says it will continue to monitor the situation and may make adjustments as needed.