Why Robinhood and other firms restricted trading in some hot stocks

Robinhood and other online brokers in the US last week, limited buying in Gamestop stock and some other stocks, like AMC Entertainment. Gamestop shares have climbed more than 1500% since the start of the year. However, it was down 30.8% as at the close trading on Monday.

The limitation placed on buying these stocks could be considered to be in the best interest of investors, as when stocks are in bubble territory, investors take positions that most likely lead to bad investment decisions and eventually increases the volatility of the market. There comes the need for regulators, sometimes market makers to halt trading or put in some limit, so as to allow investors to make informed investment decisions, just like the Nigerian Stock Exchange circuit breaker that occurred in 2020, after aggressive buying pushed the ASI above 5% to 5.08%.

In a bullish run (When prices of stocks keep increasing), be more concerned about the factor or attributes behind the run and not just about taking a position in the stock. The factor behind a bullish run plays a role in the longevity of the run and also justifies its valuation.