Jan 27, 2021 - Economy

Wall Street's own populist revolt

Data: FactSet; Chart: Axios Visuals

A popular rebellion, organized by the powerless against the powerful. It might have failed in Washington, but it certainly seems to be working on Wall Street.

Driving the news: The market value of GameStop closed at more than $10 billion on Tuesday, on record volume of more than $26 billion.

  • The winners: A ragtag group of traders from Reddit and TikTok, led by a man calling himself “Roaring Kitty.”
  • The losers: Hedge-fund short-sellers wh0 are learning John Maynard Keynes's lesson the hard way — "The market can remain irrational longer than you can remain solvent."

How it works: Thanks to Robinhood and other stock-trading apps, trading options in GameStop (or BlackBerry, Bed Bath & Beyond or any other smallish company Wall Street traders have bet against) is easy, fun, and carries an irresistible commission of exactly $0.

  • Giant hedge funds like Melvin Capital now find themselves at the mercy of thousands of small investors using the internet to coordinate their buying attacks.

The bottom line: Short-selling — betting that a company's stock is going to fall — is a crucial element of efficient markets. But, thanks to Reddit, it has also never been more dangerous.

  • Wall Street veterans say the newbies' lack of experience and diversification mean they’ll eventually get crushed by their trades.
  • So far, however, the small guys are laughing all the way to the bank.

🎧 Axios Re:Cap podcast: Reddit is running Wall Street

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