[ I N D E P T H | G A M E S T O P ]
able to move the market one way or another . However , following the successful coordination by a large group of traders , the power dynamic has shifted ; exposing the vulnerability of the market as well as the weaknesses in firms ’ trading systems ,” says Guy Warren , chief executive officer of FinTech ITRS Group .
" Some GIFs on social media platforms said that it would be funny to take a global investment bank down ."
MATTHEW MCLOUGHLIN , HEAD OF TRADING , LIONTRUST ASSET MANAGEMENT
“ 20 February marks one year since the beginning of the COVID-19 stock market crash . Twelve months on and the trading landscape has changed forever – but not as a consequence of the global pandemic . Instead , the retail trading revolt of Reddit users has been the catalyst to change the game entirely .”
Well-informed individuals keen to manipulate the market , posted information on social media forums such as the Reddit chatroom r / wallstreetbets , which boasts 4.8 million members , encouraging the masses to buy shares with the hope that it would drive the price of certain stocks up . Motives behind this onslaught ranged from making personal profit to a desire to squeeze the short positions of hedge funds .
Prompted by the information posted on social media retail investors began buying these so called “ meme-stocks ” including GameStop , AMC Entertainment , Blackberry , and Nokia . The activity sent their prices soaring , with the GameStop share prices climbing
52 // TheTRADE // Spring 2021 over 1000 % in just two weeks .
Retail investors usually focus on large-cap names as opposed to the small-cap consumer stocks undergoing structural challenges . Information on social media , however , drew attention to these struggling companies .
“ When investors see testimonials of others that have had outsized returns their attracted to more speculative trading strategies ,” added Marshall in the Goldman Sachs podcast .
On 26 January , billionaire chief executive of electric car company Tesla , Elon Musk , affectionately dubbed Papa Musk on Reddit , tweeted “ Gamestonk !!” with a link to the r / wallstreetbets chatroom . Musk ’ s twitter profile with 48 million followers gathered even more momentum for the exploding GameStop share price increase .
“ We ’ ve all seen what happens to markets when Elon Musk tweets something . Somebody might want to take his phone charger away for a while ,” says Matt McLoughlin , head of trading at Liontrust Asset Management .
“ However , this is the first time that we ’ ve witnessed social media being used by groups of people to move markets . There are other challenges that social media will bring to financial markets and this is probably the first taster of what ’ s to come .”
Steal from the rich to give to the poor GameStop was heavily shorted by hedge funds . As a brick and mortar shop during a global pandemic selling physical games in an increasingly digitised market , the company was expected to underperform .
Through social media , retail investors weaponised their involvement in stock markets to negatively affect hedge funds who had taken short positions in companies like GameStop .
" Following the successful coordination by a large group of traders , the power dynamic has shifted , exposing the vulnerability of the market ."
GUY WARREN , CEO , ITRS GROUP
“ A co-ordinated and well-informed market manipulation used retail platforms like Robinhood to squeeze shorts on the likes of GameStop and AMC ,” says Steve Keslo , head of markets at ITI Capital . A short squeeze takes place when a price is deliberately driven higher to increase the losses of