Robinhood raised an additional $2.4 billion over the weekend, the trading app said on Monday, adding to the $1 billion it had to seek from its investors earlier last week.
“This round of funding will help us scale to meet the incredible growth we’ve seen and demand for our platform,” Robinhood’s chief financial officer, Jason Warnick, said in a post on the company’s website.
The infusion was led by Ribbit Capital and included other existing investors like Sequoia Capital, Robinhood said. The company called it “a strong sign of confidence.”
The online trading firm has been at the center of a trading frenzy over the video-game retailer GameStop and other stocks, which have risen substantially over the past week.
Driven by a surge of interest among amateur investors — many of whom congregate on the Wall Street Bets forum on Reddit — GameStop’s shares soared 1,600 percent in January.
The sudden wave of buying of shares and options contracts has squeezed hedge funds that had bet on the stocks to fall. But it has also created complications for Robinhood. As its users embraced highly volatile stocks, the trading platform was forced to substantially increase the amount of money it deposits with the clearinghouse that processes its trades.
On Thursday, an arm of the Depository Trust and Clearing Corporation, Wall Street’s main clearinghouse for stock trades, demanded $3 billion in additional collateral from Robinhood, to cover risky trades by its customers, according to Vlad Tenev, the trading app’s chief executive. That was “an order of magnitude” more than was usually required, Mr. Tenev said in a conversation with the Tesla chief executive Elon Musk on the social network Clubhouse. That demand was later reduced to about $700 million.
Even so, Robinhood said Thursday night it had raised $1 billion from existing investors. The firm also tapped a credit line of at least $500 million.
“This was nerve-racking,” Mr. Tenev said.
The GameStop strategy seems to have worked.
The headline-grabbing surge in the video game retailer’s shares last month came as a group of traders, organized on Reddit and other online forums, set out to inflict financial pain on Wall Street institutions. Those hedge funds had placed large bets against GameStop — a process known as shorting the stock. If the price rose enough they would be sitting on huge losses and, eventually, be forced to rush out of those positions in what’s called a short squeeze.
Data released on Monday suggests that this in fact is what has happened. Short interest in GameStop, a measure of the volume of bets against the stock, fell by more than half last week, according to the market-data firm S3 Partners.
“The GME short squeeze has begun,” wrote Ihor Dusaniwsky, a managing director at S3, referring to GameStop by its stock-trading symbol. He said the stock’s short sellers are now down more than $13 billion.
Many market watchers suspected as much last month, as they saw the price of GameStop surge from less than $20 a share to more than $400. After all, to “cover” a short — or close out the bet on a stock’s decline — an investor has to buy the shares, and if enough funds are clamoring at once to buy the stock as they seek to limit their losses it will surge, like GameStop’s did.
(That’s not to mention that a few large investors had to fess up to the losses. Most notably, Melvin Capital sustained a 53 percent loss for the month of January and needed to raise rescue capital from some other firms.)
But on Monday, shares of GameStop were retreating — likely the result of a number of factors including that the buying pressure by the short sellers might have eased up, for now. The shares fell about 31 percent.
The drop also came as some investors turned their attention to the market for silver, where the price of the precious metal jumped to the highest since 2013 and websites selling silver coins reported unusually high demand. And, the investors who were bidding up the GameStop stock on…