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“We’ve all seen what happens to markets when Elon Musk tweets something. Musk’s twitter profile with 48 million followers gathered even more momentum for the exploding GameStop share price increase. 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. “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. Information on social media, however, drew attention to these struggling companies. Retail investors usually focus on large-cap names as opposed to the small-cap consumer stocks undergoing structural challenges. The activity sent their prices soaring, with the GameStop share prices climbing over 1000% in just two weeks. Prompted by the information posted on social media retail investors began buying these so called “meme-stocks” including GameStop, AMC Entertainment, Blackberry, and Nokia. Motives behind this onslaught ranged from making personal profit to a desire to squeeze the short positions of hedge funds. 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. Instead, the retail trading revolt of Reddit users has been the catalyst to change the game entirely.” Twelve months on and the trading landscape has changed forever – but not as a consequence of the global pandemic. “20 February marks one year since the beginning of the COVID-19 stock market crash. 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. “Until now, retail trading activity has never been able to move the market one way or another. To put the gravity of the situation into perspective, on 27 January at the height of the GameStop saga, 24 billion shares were traded on US exchanges, surpassing the previously set record by 4 billion shares traded in the 2008 global financial crisis. It resulted in market conditions likened to the dot com bubble around the turn of the century, leading to concerns that institutional investors must now adapt their risk models to mitigate the possibility of this happening again.
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The events that took place involved stocks such as GameStop and AMC Entertainment in what is considered one of the first social media driven and coordinated buying regimes by retail investors. These day traders are less than 10% of their customers, but they represent more than half of their trades.” “But this has mainly been driven by a small portion of their customer base. “For the largest online brokers, the number of daily trades has tripled since 2019,” John Marshall, head of derivatives research at Goldman Sachs, commented on a retail investment podcast from the US bank. Set up in 2013 the mobile trading app, now valued at $21 billion and proclaimed to be democratising finance, offers investors access to the financial markets with zero commissions. The Reddit revolution in the US has drawn attention to the potential power that a growing force of retail investors can wield in stock markets when equipped by social media.Īmateur investors have increasingly engaged with retail platforms in the last year, partly due to the pandemic leaving them idol at home, but also due to the newfound onslaught of information through social media and access to the market through retail brokerages and platforms such as Robinhood.