The Power of the Modern Retail Investor

There have been some pretty explosive events during 2021 which have primarily been caused by retail investors. What some are calling the Reddit Revolution has drawn the attention of the old guard of Wall Street, who are now recognising the potential power that a force of retail investors can have on the stock market when they utilise the power of social media in large groups.

Due to the pandemic leaving individuals alone at home, and bored, many amateur investors have ended up seeking excitement in the form of joining retail investment platforms, such as Robinhood. In addition to the hunt for excitement during lockdowns, many could not ignore the onslaught of positive news coming from Sub-Reddits such as Wall Street Bets, where stories could be heard of individuals making hundreds of thousands of dollars in mere days.

Robinhood was set up in 2013 as a mobile trading app, and was recently valued at around $21 billion. The premise is that they provide easy access to trading for retail investors, with zero commissions.

John Marshall, the head of derivatives research at Goldman Sachs commented that “For the largest online brokers, the number of daily trades has tripled since 2019, But this has mainly been driven by a small portion of their customer base. These day traders are less than 10% of their customers, but they represent more than half of their trades.”.

The Growth of ‘Meme Stocks’

The core events which were notable in the news involved stocks such as GameStop and AMC Entertainment, and they are considered as one of the first large scale social media driven buying regimes by retail investors. It led to significant fluctuations of the share prices, and it has been likened to the dotcom bubble around the turn of the century, where prices were just yo-yoing erratically.

The sheer level of volume being traded in January 2021 due to the rise in retail investing popularity was huge. To put perspective on this, on the 27th of January at the height of the GameStop storyline, 24 billion shares were traded on US Exchanges. This surpasses the last record set in 2008 during the financial crisis of 4 billion.

Steal from the Rich to give to the Poor

The story of GameStop essentially arose due to it being heavily shorted by Hedge Funds. During the pandemic, the company as a brick and mortar only store was expected to perform badly. However, retail investors on Reddit realised they could weaponise their involvement on GameStop.

“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.

The short squeeze which ensued drove the price higher and higher, which led to Hedge Funds being forced to buy back shares to minimise their losses. This further led to price increases. Overall, it is estimated that there were almost $5 billion worth of losses to Hedge Funds surrounding the GameStop fiasco.

In society, the financial markets, and rather the individuals which historically have worked in the financial markets do not have the best reputation from an outsider’s perspective. This was the driving force for a lot of the GameStop buying. It was a feeling of comradery to steal from the rich (who had been perceived to manipulate it themselves for their own gain), and return the wealth to the normal man. The Reddit Retail Investor.

The Power of the Modern Retail Investor

There have been some pretty explosive events during 2021 which have primarily been caused by retail investors. What some are calling the Reddit Revolution has drawn the attention of the old guard of Wall Street, who are now recognising the potential power that a force of retail investors can have on the stock market when they utilise the power of social media in large groups.

Due to the pandemic leaving individuals alone at home, and bored, many amateur investors have ended up seeking excitement in the form of joining retail investment platforms, such as Robinhood. In addition to the hunt for excitement during lockdowns, many could not ignore the onslaught of positive news coming from Sub-Reddits such as Wall Street Bets, where stories could be heard of individuals making hundreds of thousands of dollars in mere days.

Robinhood was set up in 2013 as a mobile trading app, and was recently valued at around $21 billion. The premise is that they provide easy access to trading for retail investors, with zero commissions.

John Marshall, the head of derivatives research at Goldman Sachs commented that “For the largest online brokers, the number of daily trades has tripled since 2019, But this has mainly been driven by a small portion of their customer base. These day traders are less than 10% of their customers, but they represent more than half of their trades.”.

The Growth of ‘Meme Stocks’

The core events which were notable in the news involved stocks such as GameStop and AMC Entertainment, and they are considered as one of the first large scale social media driven buying regimes by retail investors. It led to significant fluctuations of the share prices, and it has been likened to the dotcom bubble around the turn of the century, where prices were just yo-yoing erratically.

The sheer level of volume being traded in January 2021 due to the rise in retail investing popularity was huge. To put perspective on this, on the 27th of January at the height of the GameStop storyline, 24 billion shares were traded on US Exchanges. This surpasses the last record set in 2008 during the financial crisis of 4 billion.

Steal from the Rich to give to the Poor

The story of GameStop essentially arose due to it being heavily shorted by Hedge Funds. During the pandemic, the company as a brick and mortar only store was expected to perform badly. However, retail investors on Reddit realised they could weaponise their involvement on GameStop.

“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.

The short squeeze which ensued drove the price higher and higher, which led to Hedge Funds being forced to buy back shares to minimise their losses. This further led to price increases. Overall, it is estimated that there were almost $5 billion worth of losses to Hedge Funds surrounding the GameStop fiasco.

In society, the financial markets, and rather the individuals which historically have worked in the financial markets do not have the best reputation from an outsider’s perspective. This was the driving force for a lot of the GameStop buying. It was a feeling of comradery to steal from the rich (who had been perceived to manipulate it themselves for their own gain), and return the wealth to the normal man. The Reddit Retail Investor.

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Is Now The Right Time To Buy Stocks?

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Is Now The Right Time To Buy Stocks?

Join the conversation (Friday 8th of October 0930z) when our founders Greg and Rob discuss the current state of the market, answering the question whether now is the right time to buy stocks.

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