Robinhood called out and hedge funds in short ladder attack (and what that means).

I am hearing that Robinhood may be force-selling $GME shares below market value and that some hedge funds are working a short ladder attack. This is where basically bids are put into the market at a low point but never traded, forcing the device to drop as people see massive bids. However the fact they are there can influence the marketplace. This is in fact nothing new. In the book “Flash Crash: A Trading Savant, a Global Manhunt and the Most Mysterious Market Crash in History” this very thing is described. It can take down markets.

So it’s rather like this. Let’s say you want to buy a hat, but the hat is $50. You get 3 friends to go in and make smaller offers but never actually buy the hat. Let’s say one offers $30. “It’s not worth $50, I’ll give you $30”, the second goes in with an even lower offer, “How about $10?”, and the third even lower “I saw it on eBay for $5”, none of these people actually buy the hat, but it causes the price of the hat to be perceived as lower by the seller, mentally reducing the value of the hat.

Are short ladder attacks legal?

No, and that is why the SEC is investigating. In the following letter to SEC/President Biden, the legalities are played out. (credits @wallstreetbets)

15 U.S.C.A. § 78i – the Illegality of Short Ladder Attacks (Legal insight)
by inwallstreetbets

What to do if you are caught in a Short Ladder Attack.

Basically, with all share trading/currency trading, you have only 3 options, buy, hold or sell. With $GME I’m holding as the SEC is looking at all sides of this debacle. We await with interest but I doubt there will be much more than slapped wrists for Hedge Funds.

If you are caught in a short ladder attack. Hold. Don’t sell your shares, remember there is no Volume in the bids and eventually the stock will bounce back. There is of course a risk the Short Ladder Attack will be successful and bankrupt the company. I heard that one Hedge Fund is betting on $GME to go to 0. (Bankruptcy), which in these trying times of covid is a real possibility for any retailer.

I’m holding my $GME shares. Proud to be part of a movement.

(For those that are interested this SEC article is very interesting).