Thursday, February 22, 2024

How a GameStop shares Fall could hurt some investors

Any fall in GameStop Corp’s shares could cost some investors a loss.

People at risk who bought shares at the most recent price or with low margins and people who use options trading strategies.

GameStop shares, which had a spectacular recovery, fell 31% on Monday, closing at $ 225, 53% lower than their January 28 peak of $483.

Which investors can suffer a blow?

Analysts fear that some new or inexperienced investors may face losses if they buy while stocks are at their peak.

Particularly, vulnerable will be those people who bought “on margin,” using money borrowed from brokers to get extra shares.

The strategy may increase gains when stock prices are rising, but it increases losses in the fall, especially if brokers issue “margin calls” requiring clients to add money or face forced sales to bring an account’s equity back required levels.

Brokers are not required to notify customers when they sell shares in a margin call, “although most do so as a courtesy“.

According to the Financial Industry Regulatory Authority here, the industry’s self-policing body.

Riley Adams, a 31-year-old financial analyst who runs, a financial blog aimed at the millennium generation. He said that, if investors bought with a margin for the party late, “you are definitely exposed now“.

Thomas Peterffy, president of Interactive Brokers, estimated that about half of the platform’s 1.2 million accounts are margin accounts. Thousands of margin calls occur on a normal day and the rate has increased last week, he said.

Peterffy said that some 27,000 accounts held some kind of position at GameStock. He Also said many liquidated positions belonged to traders who had sold GameStock.

But representatives from brokerages TD Ameritrade and Robinhood declined to share details of how many customers may have traded GameStop shares at the margin. A Schwab representative did not answer the questions.

However, RobinHood has restricted stock purchases here, which limits investor exposure on his platform.

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