RMIT expert available for comment on the GameStop trade ban and implications for the Australian share market

RMIT expert available for comment on the GameStop trade ban and implications for the Australian share market

An expert from RMIT University is available to talk about the GameStop trade ban in the US, the GME:ASX price increase (mistaken identity) and implications for the Australian stock market.

Dr Angel Zhong (0433 810 413 or angel.zhong@rmit.edu.au)

Topics: retail investors, GameStop, Robinhood, social trading, Reddit, meme stocks, low-cost trading platforms

“In further developments in the GameStop trading frenzy saga, the low-cost trading platform, Robinhood, has banned trading in GameStop, prompting a decline in its share price.

“Expressing their frustration at the move, Robinhood users have filed a class action as the trading app “purposefully, willfully and knowingly removed the stock, GME, from its trading platform in the midst of an unprecedented stock price,” thereby depriving retail investors of the ability to invest in, and manipulate, the open-market.

“The fee-free trading app is popular among retail traders, which has played an instrumental part in the rapid growth of the corona generation of stock market participants.

“The lesson seems to be there is no free lunch. While Robinhood is fee-free, it makes money by providing liquidity to hedge funds such as Melvin Capital, and Citadel Securities, the trading platform’s largest customers.

“More importantly, Citadel bailed out Melvin Capital, which shorted GameStop heavily and suffered a huge loss.

“What are the implications for the Australian market?

“On 27 January 2021 GME:ASX, a mining company sharing the same ticker code experienced a 28% increase in price with no price-sensitive information released.

“It’s similar to the way investors bought up the wrong Zoom shares in April 2020.

“In recent years the Australian stock market has welcomed several low-cost trading platforms such as Superhero and eToro.

“Copy trading is offered by some of the platforms, which is a form of social trading, and similar to the way Reddit traders have bought up GameStop this time.

“In Australia, ASIC is concerned about social trading and has warned retail investors to be cautious about copy trading offered by low-cost trading platforms.

“The GameStop Saga has also alarmed the short-sellers in Australia who may face a battle from retail investors.

“There could be a price surge in the most shorted Australian stocks such as WebJet, A2 Milk, and Flight Centre.”

Angel Zhong is a Senior Lecturer in Finance in the School of Economics, Finance and Marketing at RMIT University. Her research focuses on investment and investor behaviour in share markets and corporate governance around the world.

***

For media enquiries, please contact RMIT Communications: 0439 704 077 or news@rmit.edu.au

 

 

 

29 January 2021

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29 January 2021

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