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Bloomberg: How WallStreetBets Pushed GameStop Shares to the Moon

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By No Excuses
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tshile

tshile

Posted
Posted
1 hour ago, max21 said:

I thought Robinhood made money mainly by selling trade data to hedge funds? And for the most part it seems “free” to me (retail investors) since I thought they pretty much got rid of trading fees? I appreciate your input 


 

https://www.cnbc.com/2020/08/13/how-robinhood-makes-money-on-customer-trades-despite-making-it-free.html

 

 

1 hour ago, Corcaigh said:

DOGECOIN now up over 500% in the last 24 hours

Some of the exchanges crashed

 

it’s been fun watching

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techboy

techboy

Posted
Posted
7 hours ago, max21 said:

Maybe you can enlighten me a bit more, since you seem to know more than me on the subject. I thought Robinhood made money mainly by selling trade data to hedge funds? And for the most part it seems “free” to me (retail investors) since I thought they pretty much got rid of trading fees? I appreciate your input 

 

Here's an SEC press release that talks about it.

 

https://www.sec.gov/news/press-release/2020-321

 

I'm not an expert on the topic, because I don't trade actively, so I've never dug into it. I would, though, if I was moving the kind of money the people on Reddit and elsewhere seem to be.

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techboy

techboy

Posted
Posted

I think I'd pump the brakes on the David vs. Goliath feel good vibes a bit, though.

 

One of the reasons hedge funds are a terrible investment, generally, is that they have sky high fees (standard is "2 and 20"... 2% plus 20% of profits) which encourages the people running them to engage in absurdly risky behavior (like greater than 100% shorting of a stock). If they win, they clean up. If they lose, they close and re-open elsewhere later under a different name. There are probably a lot of investors who are eating this loss, but I'm not sure the people running the hedge funds are included. And, given that state and local pension funds often use hedge funds, the people getting screwed could well be, among others, teachers and nurses and police officers, and anyone that pays taxes in states and localities to help meet those pension obligations.

 

On the flip side, there are definitely small investors making a profit NOW, but it is inevitable that this bubble is going to pop. This doesn't make me a market timer because I have no idea when it's going to happen, but long term the price is unsustainable and fundamentals will win out, as they always do (eventually). Still, inevitably, along with the people that get out in time and the people that wisely don't invest more than they can afford to lose (like @tshile), treating it more like a trip to Vegas, there are going to be naive small time investors who get swept up in the excitement and lose a fortune. That's what happens in bubbles.

 

It's good that this is shining a light on things that probably need better regulation, but a lot of non-billionaires are going to get hurt before this is over.

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techboy

techboy

Posted
Posted
4 minutes ago, Bonez3 said:

Can you still buy shorts on GME at current prices?

 

The fact that you have to ask means you should really do some research before you try this kind of trading. For example, did you know that while going long caps theoretical losses at the value of the purchase (it can only go to 0), short positions have unlimited loss potential?

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Llevron

Llevron

Posted
Posted

There are smart gambles and there are stupid gambles. If you are going to jump in this **** now be smart and only play with money you can afford to lose 100% of. Most people jumping into this show have no idea what they are doing. If they did they wouldn't be doing this. Someone is absolutely going to lose in this and its never the people with enough money to recover from it. 

 

I saw a few cats on Reddit this morning talking about "So whats the plan? We just hold forever or we all get out at once???" Dude has no idea whats about to happen to him. 

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Mooka

Mooka

Posted
Posted
8 minutes ago, techboy said:

It's good that this is shining a light on things that probably need better regulation, but a lot of non-billionaires are going to get hurt before this is over.

 

Its not just shining a light on more regulation, this has created an entire new generation of investors. (young) Also just expanded the marketplace by an exponential rate.

 

And millions of people right now are learning about how the stock market works; shorting/buying stocks, etc. 

 

Everyone loves a David vs Goliath story and certainly people will capitalize on the story too. 

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Warhead36

Warhead36

Posted
Posted
Just now, Llevron said:

There are smart gambles and there are stupid gambles. If you are going to jump in this **** now be smart and only play with money you can afford to lose 100% of. Most people jumping into this show have no idea what they are doing. If they did they wouldn't be doing this. Someone is absolutely going to lose in this and its never the people with enough money to recover from it. 

 

I saw a few cats on Reddit this morning talking about "So whats the plan? We just hold forever or we all get out at once???" Dude has no idea whats about to happen to him. 

Yeah I have an exit strategy in place, and I'm really only investing the profits I make from my long term index funds. Nothing i lose will make any sort of dent on my day to day life whatsoever.

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techboy

techboy

Posted
Posted
1 minute ago, Mooka said:

And millions of people right now are learning about how the stock market works; shorting/buying stocks, etc. 

 

No, they're not, and that's the problem. They'll find out once they've lost their rent money, but that's a hard way to learn.

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Going Commando

Going Commando

Posted
Posted
5 minutes ago, techboy said:

It's good that this is shining a light on things that probably need better regulation, but a lot of non-billionaires are going to get hurt before this is over.

 

Yeah.  There is a lot of new stuff going on in this bubble to unpack, and it's going to be worth studying all of the potent social/psychological dynamics fueling this bubble.  I read this post on Reddit and think some of the points the poster made are worth keeping in mind:

 

Quote

I don't work on the trading floor, but I'm an attorney who services a variety of financial institutions, including broker/dealers.

This isn't the exciting, hilarious answer you want, but a lot of people had no idea it was even happening until the past 48 hours, and even now, it's mostly just a funny news article about some internet trolls making a bubble.

This is a big deal to the shorting community, but to the other 99% of the financial world, nobody gives a ****.

As much as young people on the internet like to imagine this as an epic, David vs Goliath, Wall Street vs Main Street showdown for the history books, from a bird's eye view it's actually just a brief dumpster fire where a couple hedge funds lost their shirts betting on one little small cap stock. It has happened before, and it will happen again.

In 6 months, nobody will remember or care, except that (maybe) it will become more difficult for retail investors to trade options.

And not because the greedy hedge fund oligarchs forced the SEC to crack down on retail investors. But rather because, when this is all said and done, there is going to be a black hole where most of these retail investors' brokerage accounts used to be, and the SEC and brokerage community will be lambasted for failing to protect unsophisticated investors from a bubble.

I have been monitoring the WSB threads, and while the WSB veterans know that they're making a suicide charge for the memes, they have brought thousands of naive, new investors with them - who predominantly think that they're going to somehow come out on top, not realizing that they're cannon fodder for the more savvy WSB users to exit with gains.

Redditors never seem to stop and think about why the WSB guys know so much about derivatives trading. Or how they seem to know how to access and read from a Bloomberg terminal. Or why there are so many users there that can seemingly drop tens or hundreds of thousands of dollars on complicated meme plays.

How do you think that WSB knew that GME was open to a short squeeze and a gamma squeeze play?

WSB's power users are younger finance bros. It's 30-something investment bankers and portfolio managers memeing with each other and cosplaying as "autists."

If you didn't know what a gamma squeeze was 48 hours ago, you are their exit strategy and the down payment on their next Porsche.

 

It's worth keeping in mind with large and anonymous online communities like Reddit that you have no clue who is behind the post and what there real interest is (which also includes the guy who made this post). 

 

When a social media user sees a post that has a lot of upvotes/likes/awards, it lends that post powerful credibility even though the process by which posts become highly upvoted and have their visibility elevated is completely opaque to the average user.  Add in a bunch of funny jokes to disarm skeptics and make them seem lame and a meme subculture that makes people feel like they're a part of something hip and bigger, it irresistably scratches this social need we all have and persuades us buy into this call for solidarity ("hold the line") in a community of anonymity.  It creates an environment for rampant exploitation. 

 

But that poster is definitely missing the unique factors about this squeeze--the scope of attention it's getting, the scope of new participation in the securities trading market, and the innovation of using social media to collectivize trading activity among millions of small-holders (spreading the risk out), and then weaponizing populist political sentiment to facilitate the squeeze.

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Mooka

Mooka

Posted
Posted
16 minutes ago, techboy said:

 

No, they're not, and that's the problem. They'll find out once they've lost their rent money, but that's a hard way to learn.

 

I didn't mean only those investing in GME or one reddit forum. The entire country is watching this.

 

And easy way or hard way... People lose their rent money for way dumber reasons then countering a hedge short on the stock market.

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