GameStop stock frenzy prompts brokerage to label some stocks ‘risky’

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Canadian investing app Wealthsimple is labelling some stocks as “risky” after a volatile week for shares of GameStop, BlackBerry and other companies favoured by self-directed retail investors.

The GameStop stock page on Wealthsimple’s app advises users that the ticker, GME, is considered risky and that traders should expect high volatility.

The Toronto-based robo-adviser suggests that investors who want to trade the stock place a limit order with a set price, as opposed to agreeing to buy or sell at whatever the market price is at the time.

AMC Entertainment and BlackBerry stocks also carry a warning on the app after prices whipsawed this week, posting steep gains or losses from day to day.

GameStop share prices have been on a wild ride this week because of a fight between self-directed retail investors buying up the company, and short sellers on Wall Street who bet heavily against it.

Other companies, including movie chain AMC, confectionery company Tootsie Roll, phone maker Nokia and even Canadian tech company BlackBerry have been swept up in the furor with huge stock price moves from hour to hour and day to day.

GameStop shares were up about 30 per cent on Friday to $275 US in the afternoon. At the start of the week, they were worth $75 US, but at one point on Thursday they were going for as low as $112 and as high as $483.

Trading platforms have moved to make it harder to trade in high-flying but highly volatile stocks this week. (CBC)

Wealthsimple has said it will not restrict trading on certain securities, after TD said it would increase margin requirements for short-selling and uncovered options for a handful of volatile names.

Royal Bank confirmed to CBC News on Friday that its brokerage will no longer allow customers to buy GameStop on margin.

Wealthsimple chief investment officer Ben Reeves said on the company’s website that followers of the GameStop frenzy could end up being worse off from the trend, adding that trading based solely on online forums is a “pretty lousy strategy.”

Robinhood targeted

Robinhood, a stock trading app in the U.S., has been hit by a class action lawsuit on behalf of its customers, many of whom owned GameStop shares, and wanted to continue to trade them without any limitations.

Robinhood moved to allow some types of trading again on Friday, but the app has faced serious reputational damage for limiting trading in the volatile stocks. 

Andy Nybo, managing director at Burton-Taylor International Consulting, said brokerages were forced to act.

“The brokers were forced to take action because they would be in the firing line if an unsophisticated investor loses money,” he said.



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