If you are anything like me, you have recently heard words like “Robinhood,” “online brokerage,” “hedge fund,” and “stock exploitation” across your various social media apps, but may not have had any clue what was going on. As someone who was not previously very educated on things like hedge funds and online brokerages, I was baffled, yet interested, at how a bunch of people on Reddit could wreck bank accounts (and presumably anger) a large number of multi-millionaires. Turns out, it’s not quite as complicated as it sounds.
Essentially, a member of a popular Reddit online stock trader forum, called r/Wallstreetbets, urged followers to buy GameStop stocks. Since GameStop seemed to be a relic of the past (for me personally, the store conjures memories of buying Wii games in 2009), this investment did not seem like an obvious money maker. Though the forum was initially established for trading tips and stock market memes, its large following and a multitude of other users decided to actually buy stock in GameStop. This surprised and negatively impacted large hedge funds and investment companies, who attempt to increase their clients’ money by beating the market. The hedge funds essentially borrow shares of stocks and sell them. They later buy them back and make money if the price of the stock goes down. They can then make money off of that price difference. But if their predictions aren’t right, they have to buy the stock back at a higher price and lose money. So how were these Reddit users able to beat these millionaires at their own game?
Before modern websites and apps like Robinhood existed, people who wanted to invest in stocks had to go through a hedge fund manager or stockbroker. But because amateur stock buyers are now able to quickly and easily invest their money through online trading and investing apps like Robinhood, these Reddit users could beat the “middleman” situation of hedge funds or stockbrokers, and cause GameStop stock to jump more than 2000%. In fact, though the stock was worth less than $20 at the beginning of January 2021, its price skyrocketed to $347.51 per share by January 27th. It was at this point that Robinhood restricted trading, which caused many angry amateur stock traders to publicly critique the app. Robinhood’s CEO, Vlad Tenev, defended the platform’s decision, stating that “in order to protect the firm and protect our customers, we had to limit buying in these stocks.” Although many people think that Tenev was urged or perhaps forced to make this decision by a prominent hedge fund or market maker, he denies these claims. Regardless, Robinhood’s actions have angered both amateur stock buyers and hedge fund owners.
Ultimately, the founder of r/WallStreetBets, Jaime Rogozinski, says this whole event has been a “symbolic movement.” What may seem like the crazy chance luck of random Reddit users is actually a step towards diminishing the unfairness and exclusionary practices of modern stock market dealings. Instead of only multi-millionaires being able to profit from the stock market, these Reddit users were able to work together to make decent profits for themselves. Rogozinski even suggests that “it’s the democratization of financial markets. It’s giving a voice to the people that didn’t previously have one.” This surprising social media trend ended up turning into a direct stab at corporate greed. Who knows what’s next?
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