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hedge funds that had bet the price would fall . It is exacerbated by the fact that hedge funds with short bets are also forced to buy back shares to minimise their losses , further driving the price up .
According to data and analytics firm S3 Partners , by 27 January short sellers had accumulated losses of more than $ 5 billion in 2021 , including a loss of $ 1.6 billion on the 22 January and $ 917 million on 25 January .
Social media forums have become breeding grounds for ‘ activism investment ’ and an anti-Wall Street establishment movement , driven by retail investors who have banded together in a bid to take down financial institutions by squeezing their short positions .
“ In wider society , financial markets don ’ t have the best reputation and outsiders view hedge funds in an even worse light , which is probably why they have been targeted in the GameStop saga ,” explains McLoughlin .
“ Some GIFs on social media platforms said that it would be funny to take a global investment bank down . I don ’ t think it would be funny for the US economy or good for the individuals making those GIFs if that actually happened . There is sometimes a disconnect between what is put on social media and reality .”
Rethink risk With many Reddit revolutionaries praising the chaos that has ensued for certain financial institutions there is the potential for another coordinated social media-fuelled squeeze to take place , and for this reason , institutional investors will need to place a greater emphasis on risk management practices .
Social media has continued to play a role in stock markets since the GameStop saga . The Securities
" All of a sudden hedge funds started selling long positions , in other solid names where asset managers were investing ."
CHRISTOPH HOCK , HEAD OF MULTI-ASSET TRADING , UNION INVESTMENT
and Exchange Commission ( SEC ) stepped in and banned trading in six names on 26 February following speculation that they “ may also have been targets of apparent social media attempts to artificially inflate their stock price ”.
Reddit favourites such as GameStop and AMC Entertainment also continued to rally on 1 March , rising 10.1 % and 13.7 % respectively , as more day traders congregated on social media to try and repeat the spikes seen in January .
The risk models of certain hedge funds and institutional investors proved themselves redundant in a situation like the one that unfolded in January . As an event like it has never happened before , risk models have never had to comprehend the situation that took place and were subsequently not equipped to manage them .
“ If you ' re a hedge fund engaged in the practice of shorting and that ' s part of your business model , you ' re running a long book and a short book and you ' re
54 // TheTRADE // Spring 2021