Retail Abandons GameStop ($GME)

This post is by Jeff Carter from Points and Figures

A lot of people are upset that retail brokers are restricting trading on speculative stocks like GameStop.  I understand and empathize with their feelings.

At the same time, I have a little experience with volatile markets.  When I was on the board of the Chicago Mercantile Exchange, we regularly had to look at market volatility, position concentration, and adjust margins accordingly.  Contracts had circuit breakers built-in that were transparent to the marketplace.  Most agricultural contracts had daily limits.  Financial contracts were more fluid.

Believe me when I tell you it’s never fun to trade when a commodity is lock limit against you.  Been there done that.

I have had my clearing firm tell me to trim a position, or add cash to my account otherwise they were going to take things into their own hands and get me out.  I have seen volatility happen and had margins increased significantly overnight so holding a position was more expensive.  It forces a little discipline into your trading strategy when you have that “extra” constraint!

I haven’t looked at exact policies of each and every retail outlet, but I think I can generalize.  Basically, if you have a position, you can hold it or you can close it.  You can’t initiate new positions and “trade” the stock.  You can’t roll a position.

It certainly seems unfair on the surface.  After all, free markets for free men and all that. People ought to be able to make up their own minds with their own (Read more...)