It's for their protection!
Well, that might not be totally wrong. They are regulated to some degree to protect gamblers.
Interesting take on it, which chimes with my feelings (therefore is correct)
David vs Goliath narrative has serious flawsWorth reading, including the fact that Robinhood may genuinely have been under some legal pressure to stop the trading. Partly to protect the gamblers, but also as they may have been in some trouble in terms of equity and paying out winning bets.
But some traders will suffer mightily. The novices who jumped on the GameStop bandwagon after the price had already begun rising and are keeping their shares to the bitter end – an approach known as “holding on with diamond hands” – will probably end up losing most of the money they invested. Many of these investors probably would not have invested without the urging of the social media campaign and in some cases can ill afford the losses.
Complicating the story further, on 29 January, Robinhood imposed restrictions on trading in 50 companies, including those on which the Redditors were betting – a move that caused GameStop and other stocks to nosedive and attracted the ire of Ocasio-Cortez and Cruz. (It has since narrowed the restrictions to only eight Reddit favourites.)
One duty of financial regulation is to protect people who may not know what they are getting into from losing everything. So, the US Securities and Exchange Commission released a statement announcing an investigation into the “regulated entities” – not the roulette players but the house – to ensure they “uphold their obligations to protect investors and to identify and pursue potential wrongdoing”.
This is not the first time Robinhood has come under SEC scrutiny. In December, the company was fined $65m for misleading customers about how it makes its money. (Robinhood led customers to believe they were getting the best price for their orders but actually gave orders to firms that generated higher revenues for the company.)
During the GameStop episode, Robinhood’s problem was that it had been operating with too thin a margin. When faced with both regulatory constraints (in the form of capital requirements) and demands from its market clearing house that it put up more deposits to back its trading, it faced the prospect of being unable to pay off customers who had won their bets.