When you hear the terms “short selling,” “brokerage firm” and “hedge fund,” you think of white collars, yachts, and Wall Street brokers. The average person sees the stock market as impenetrable, a weird gambling method that some investors use to hit it rich, right? Well, not anymore.
Enter plucky subreddit Wall Street Bets, known to users as WSB.
WSB is a popular forum on social media site Reddit, where users speculate on good investments and try to empower amateur investors to make a bit of money on the stock market. It’s well-known for a few things: its unhinged, often unsettling energy, making investing understandable for the average person and, more recently, costing Wall Street hedge funds billions of dollars.
Playing the Game(Stop) in a New Way
As we commented on earlier this week, WSB recently helped spur a massive short squeeze on the stock of GameStop, a retail store that sells mostly Funko Pops and sometimes video games. This short squeeze was immense: while GameStop stock was trading for less than $30 earlier this month, it’s spiking well over $300 at the time of this writing.
Many amateur investing platforms, like Robin Hood, have temporarily paused trading on GameStop and some other retail stocks.
This sudden windfall for amateur investors is, frankly, unprecedented. Thanks to the GameStop short squeeze, as well as similar situations with AMC Theaters and Blackberry, a loose cohort of internet trolls has effectively kneecapped billions of dollars’ worth of hedge fund short selling.
Needless to say, social media is abuzz with unfiltered glee over the misfortune of investors who have profited from the misfortune of retailers in the past.
This situation has drawn the attention of both the Biden administration and the SEC. Many of the hedge fund investors who have been burned by this sudden reversal of fortune have begun calling for legal repercussions for the subreddit and for amateur trading in general.
However, it’s difficult to say what laws, if any, have been broken.
It’s not illegal to post on social media that you think hedge funds are being overzealous in short-selling a stock. It’s also not illegal to be giddy when a firm loses $2.75 billion, as Melvin Capital did, though it might be in poor taste to tap-dance to the tune of a company losing a lot of money.
What happens next is anyone’s guess, however, and Wall Street insiders are predicting some regulatory changes to coincide with this unexpected twist in the market.