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What are the short term effects for a retail investor if the broker suddenly decided to allow close only for some positions?

Personal Finance & Money Asked on September 3, 2021

The main platform I use for the investment made the following announcement followed by several dozens of tickers that it applies to:

Due to low levels of liquidity, *** has made some changes to how a
number of stocks can be traded on the platform. As communicated
previously, we have disabled the ability to open entry and exit orders
on these stocks when the market is closed. Please read below for
further details:

  1. The ability to open market entry and exit orders is reserved for instruments which carry a certain minimum level of liquidity. We are
    therefore not offering market orders outside of market hours for these
    stocks.

(..)

  1. Open CFD positions for these stocks will be made "close only" on Sunday January 31, 2021."Close only" means that users cannot add more
    funds to the existing CFD positions on these stocks. Please note that
    users can still adjust the Stop Loss and Take Profit on these CFD
    positions.

*some parts removed for brevity

The first point is a small inconvenience for me than a real issue since I mostly invest long term. However, it is not clear what are the consequences for the third point. I have only three positions affected by this (~ 10% total portfolio) and currently, the average P/L is about +10% for these affected positions.

My understanding is that this was done as a protection for the hedge funds shorting many of these stocks, by preventing aggressive sell and hold made by the retail investors.

Anyway, for me, these investments were done long term and I cannot understand what is the effect of such a measure. Should I expect the price to drop (and sharply come back) for these? If I am "long" on these and they have good fundamentals and/or technical data, I expect the price to eventually grow, but I am also afraid of hitting the Stop Loss.

Note: this is a very popular platform primarily targeted to beginners and I assume that this measure affects dozens of thousands of users.

One Answer

I'm just going to address one aspect of your question:

My understanding is that this was done as a protection for the hedge funds shorting many of these stocks, by preventing aggressive sell and hold made by the retail investors.

I believe that you are referring to Robinhood. They required additional funds to operate.

Facing an onslaught of demands on its cash amid a stock market frenzy, Robinhood, the online trading app, said on Thursday that it was raising an infusion of more than $1 billion from its existing investors.

On Thursday, Robinhood was forced to stop customers from buying a number of stocks, like GameStop, that were heavily traded this week. To continue operating, it drew on a line of credit from six banks amounting to between $500 million and $600 million to meet higher margin, or lending, requirements from its central clearing facility for stock trades, known as the Depository Trust & Clearing Corporation.

Robinhood still needed more cash quickly to ensure that it didn’t have to place further limits on customer trading, said two people briefed on the situation, who asked to remain anonymous because the negotiations were confidential.

This implies that Robinhood is undercapitalized, another one of its many failings. The restrictions were imposed so that they could survive rather than being done as a protection for the hedge funds shorting many of these stocks.

Correct answer by Bob Baerker on September 3, 2021

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