The democratization of stock trading through applications and social networks sparked a war on Wall Street this week in which for the first time the big funds were beaten, with $ 20,000 million and a lot of pride lost on the battlefield, and behind which opens a regulatory dilemma and on a system. that’s the big one estate agents they checked.
After a 2020 full of shock, it’s no surprise that the managers of Manhattan’s major fund of funds found out this week what the next stock market move was that was “ Deepfuckingvalue, ” one of the leaders of the revolution from the Wallstreetbets forum on Reddit.
Deepfuckingvalue, whose name is Keith Gill, managed from the basement of his Massachusetts home to beat funds like Melvin Capital, who had amassed a large volume of short options, the right to sell higher value stocks in the future by pocket the difference, from GameStop, a fading video game store.
Gill wasn’t alone. Van Discord turned a series of chat rooms into a virtual park, and Wallstreetbets, a Reddit sub-forum with millions of members who, on average, invest just a few thousand dollars in stocks, mostly through the commission-free application Robinhood. an epic battle.
To the beat of the meme
Shouting “wait a minute! Hold on” and “to the moon,” millions of small investors raised GameStop’s share price, which was $ 4 less than a year ago, to over 400. AMC, Nokia, and Koss headsets were other targets that caused an exodus on the large investment funds.
To reduce losses, these big Wall Street traders were forced to hedge short positions by buying stocks en masse, triggering an even greater price hike, known as ‘short squeeze’, a phenomenon caused by the phenomenon that large investment funds could have made 20,000 to lose. million dollars and that in the case of Melvin Capital forced an emergency injection of 3,000 million.
“Many see this as a sign that the relentless bull market will eventually end in blood and tears,” Yves Bonzon, chief investment officer at Swiss bank Julius Baer, said in a comment.
For the first time in history, small investors, forced for decades to dance to the beat of Wall Street’s greats, took control, leading to several simultaneous short bottlenecks and the largest increase in volatility in two years and a transaction volume at the level of the days of the 2008 crisis.
The GameStop phenomenon has been brewing for years and has already been tested by Tesla’s impressive rise over the analyzes of many Wall Street celebrities, while encouraged by personalities such as Tesla founder Elon Musk.
Musk only needed a tweet on the 26th with the word ‘Gamestonk’ (a nod to a meme) to launch GameStop’s stock price above $ 300, while ‘Deepfuckingvalue’, which has been accumulating options in GameStop since 2019, more than $ 25 million in an initial investment of 50,000.
Robinhood, the friend from Wall Street
Behind this democratization of the stock market is the Robinhood application, which allows you to invest easily and without commissions from your mobile phone and use resources such as leverage or purchasing options and even opt for techniques as complex as the ‘Iron Condor ‘, a combination of different options.
Born with a promise to “get the people in the stock market to trade,” thanks to Robinhood, millennials and now Gen Z love the stock market, understand the fundamentals and play it like a game.
The Securities and Exchange Commission recently fined Robinhood for failing to explain that their way of actually making money is by contributing a massive volume of buy vein orders to major funds like Citadel and making a profit on the price differentials between the order and the execution are generated.
That dichotomy was highlighted this week when Robinhood limited activities in the securities most affected by speculation and investors took up arms against the same application that enabled them to trade in the stock market, to the point of protesting in the streets. .
The SEC has sided with small investors for the time being and assured Friday that it will investigate the restrictions imposed by Robinhood, although it is evidenced by its inability to act against these speculative moves.
Interestingly, many of the small investor advocates are billionaires. “At the moment of truth, we found out who is the real customer that concerns Robinhood,” explained Tyler Winklevoss this weekend, one of the founders of Facebook and investor in cryptocurrencies, who will not stop defending the ‘people’ against the dictatorship of funds. .