German Retail Brokers Suffer Trading Outage amid GameStop SagaJanuary 28, 2021
German retail brokerage Trade Republic has reported service disruptions, with many clients already encountered delays executing trades or temporarily lost access to their accounts.
The fintech startup, which mimics Robinhood’s offering in Germany, has also banned its users from buying GameStop, AMC, Blackberry, Nokia and other stocks amid a surge of bets by small investors.
The service disruptions and new restrictions have come during a period of frenetic trading, where Reddit users were accused of inflating the price of these stocks. In the process, that has resulted in huge losses to some of Wall Street’s biggest hedge funds.
Trade Republic said users are only allowed to close out their positions, and shifted its trading to a backup platform. The company cited the “hefty, coordinated share speculation,” joining other brokers who accused the amateur investors of market manipulation.
Shares of companies such as videogame retailer GameStop shot wildly higher in the last two weeks after an army of individual traders congregated on Reddit’s ‘WallStreetBets’ subreddit to collectively buy more of these shares.
The rising prices have prompted hedge funds to buy back shares they had sold short to cut their losses, pushing the trading volumes further higher in the process. Some Wall Street’s funds took a huge loss a result.
Melvin Capital Management was forced to close out its short positions after it lost $2.75 billion, or 30% of its total capital, as Reddit users sought to punish the hedge fund’s betting against GameStop.
Other brokers have moved to curb trading of these shares by varying restrictions, depending on the security, such as limiting leverage levels, banning short sales and increasing margins to stop Reddit investing frenzy.
Ameritrade, Robinhood, Vanguard and other brokerage firms also endured multiple outages over the past two days, which prevented clients from accessing their accounts. Meanwhile, at least hundreds of Revolut customers have been left unable to sign into the banking app Wednesday due to technical issues.
German investors trading a variety of derivatives products are subject to new capital gains taxes that drastically limit their ability to offset losses against profits they earn from derivative transactions.
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