Retail investors unite their forces through Reddit to buy into the struggling GameStop stock. // Photo courtesy of The Guardian.
Members of the Reddit chat room ‘Wall Street Bets’ rallied together a little over a month ago to buy into the struggling GameStop stock in an attempt to save it from the hedge funds that were short-selling it. GameStop has a bleak future, but “it was more of a movement” for the retail investors, according to Pritpaul Minhas, a sophomore finance major at Hofstra University.
“It’s millions of people coming together, combating these market forces and trying to change what’s happening,” said Zachary Duren, a junior finance major and vice president of Alpha Kappa Psi, a professional business fraternity at Hofstra. “The higher-ups on Wall Street are going to have a new respect for retail investors.”
This type of short squeeze is not significant, but the role Reddit played in this situation is what made it notable, according to Paul Bjorneby, an adjunct finance professor.
“What is unique about this situation,” Bjorneby said, “is that a lot of the trading activity was generated and fostered via social media.”
This event marks a turning point for the stock market, with social media now playing an avid role in influencing trading and investing. Because of this, Bjorneby believes that the hedge funds will be more wary of retail investors and their activity on social media.
“I spoke to a couple of people who work at hedge funds and institutional investors after the GameStop frenzy took place,” Bjorneby said, “and all of them said that they are monitoring social media more closely than they have in the past.”
Cristina DaCosta, a senior finance major and secretary of the Hofstra SheEOs, an undergraduate women in business organization, believes that social media’s involvement with the financial market will work in favor of retail investors.
“It [social media] evens out the playing field,” DaCosta said. “For the first time, [retail investors] were actually winning.”
However, this war between the hedge funds and the retail investors came to a screeching halt on Thursday, Jan. 28 when GameStop collapsed after Robinhood, a popular commission-free investing platform geared toward individual investors, had to freeze trades, which ultimately benefitted the hedge fund investors.
“The reason it’s become controversial,” said Ronald Frank, an adjunct assistant professor of finance at Hofstra, “is because some of the affected parties raised a suspicion that Robinhood was doing this at the behest of the hedge funds.”
At the House Financial Services hearing on Thursday, Feb. 18, Vladimir Tenev, CEO of Robinhood, said there was no outward influence from hedge funds or market makers that caused them to freeze the stock. There is still no definitive conclusion as to if there will be any regulatory response.
In the meantime, many young investors are ditching the platform for other brokerages and trading platforms. “I’ve definitely started looking into other platforms,” Duren said. “Robinhood doesn’t have the backing they need to be a financial institution.”
Minhas left the platform, saying that although Robinhood did what it had to do, it was unethical to put investors in that situation. “It showed how bad of a broker Robinhood actually is if they’re not able to handle something like that.”
Despite the controversy surrounding Robinhood, Frank encourages people to continue to invest.
“It’s terrific for younger people to become involved in the stock market,” he said. “Just make sure you educate yourself about what you’re getting into.”
Minhas agrees, saying that social media is creating more access and information regarding the stock market and younger people should take advantage of that.
“Young people should definitely read up, do their research and start investing,” he said.
