Something incredible is currently underway between retail investors (the general public) and big money hedge funds over GameStop. Yes, that very same brick-and-mortar store that sells video games. While this current situation has the potential to redistribute considerable wealth, it has also showcased just how closed the stock market really is.
The stock market is supposed to be free. Not in terms of a means to buy and sell shares, but the ability to do so. I’m supposed to be able to buy and sell as I please, just as much as you are, and just as much as the suits over on Wall Street. It’s supposed to be an even playing field, though they have vast amounts of tools, funds, and expertise.
A “free” market
In order to purchase and sell shares, we have to go through an intermediary known as a broker. Most trades are placed instantly and the broker holds your free funds, as well as any shares you own. Seems pretty straightforward and keeps it simple for the average Joe, right? That’s how it’s meant to be.
In reality, 2021 has already shown us just how rigged the system is – and I’m not being hyperbolic here. Several brokerages, including RobinHood in the U.S. and Interactive Brokers (who Trading212 uses), froze the ability for retail investors to buy new shares in GameStop, AMD Entertainment Holdings, as well as others.
On January 28, retail investors awoke to the inability to open new positions on GME, which was shooting up into the sky well into the $400s. Brokerages banded together to freeze the purchase action, but continue allowing retail investors to sell and liquidize. As expected, this drove the price of the stock down.
This is market manipulation in its most public, blatant form. Here’s the short version as to why. Retail investors have been battling hedge funds to increase the price of the GME stock. Why? Because these greedy Wall Street firms decided to bet on GameStop failing and drove down the stock price to near bottom levels.
Infinite money glitch
Instead of cashing out on their bets and leaving GameStop to its demise, they decided to continue holding their bets (called “shorts”) and drive it down even further. What these firms didn’t expect was someone to notice and that’s precisely what occurred on the WallStreetBets sub-Reddit.
Retail investors came together and worked out that the hedge funds not only shorted GME to the bottom but also bet on way more shares than are actually available. By driving the price back up, retail investors are able to force these firms to take massive hits (upwards of $70 billion already) and redistribute wealth from Wall Street to the general public.
Now, back to the brokerages. This is why the price tanked because retail investors were unable to purchase shares to drive up demand. These platforms stated they were protecting clients, but this was nonsense since many of them allow for insane spreads, CFDs, and other incredibly risky plays.
Blocking the purchase of the stock, but allowing people to sell is not a free market. This is a rigged system. It’s down to the regulators to ensure participating parties are safe, not brokerages. Do you think they’re worried about your safety when publishing a message that upwards of 80% of people lose money in options trading? Of course, not.
Financial regulators worldwide should bang such practices by heavily penalizing any brokerage that decides to lock down access to stocks, especially in such a one-way manner. What’s hilarious about this situation is that it didn’t have the necessary effect, but riled up retail investors further and got yet more people on board.
We’ll have to see how today plays out, as well as next week. I’m rooting for everyone buying GME stocks. (As a disclaimer, I have a small stake in this position and was able to buy in days ahead of Trading212 locking it down.)