Missing the Point over GameStop
Yesterday we saw further volatile trading in GameStop shares. Whether this is the start of another rally or just day traders ‘shaking the tree’, time will tell. But what is clear is that this new trading type won’t just go away.
By Philippe Ghanem – Executive Chairman, SquaredFinancial
The response of the main markets to the way retail investors traded GameStop is a concern. The day/ retail/ meme traders have been dismissed as fools, accused of breaking regulations and using trading options as ‘weapons’ to attack hedge funds. This completely misses the point and is like the commentators who still claim cryptocurrencies are a fraud…
To continually refer to the behaviour of private traders as ‘gambling’ shows a lack of connectivity with, and respect for, millennial and GenZs. It cannot be called gambling as for most people it was not about the money it was always about the issue.
Retail traders are market literate and were able to identify where the short pain points were and exploited these. Any hedge fund which had done the same would have been lauded. Retail guys have always been the ones to get squeezed out by ‘flows’ when they had the right market view but not the pockets to sustain moves. When the tables turned, they suddenly became a problem.
Bitcoin was launched as a way of decentralising global financial markets and with GameStop, we are seeing a reaction against certain institutions. The way this was done shows a level of sophistication that nobody should dismiss as gambling. Detailed knowledge was used to target a specific outcome and show a weakness of centralised systems.
However, GameStop was gamification, with a few people who knew exactly what they were doing, leading may thousands of people in a dance they liked. And, we have to remember that on Tik Tok there are a billion people happily following the dances set by a few people.
Social media platforms have shown they can disrupt established institutions. Yes, some or most of the traders lost money but maybe being able to hurt the hedge funds was, in this dance, the only reward they needed.
We have to recognise that trading will change. There is a wave of growing anger, for example, that private traders will not be allowed to invest in a series of high-profile IPOs of companies which are of their generation, like Wise (Transferwise), Darktrace, Deliveroo, and PensionBee. These deals are limited to institutions. These are not gambling, but the traders accused of gambling are excluded. The concern is that when the odds are set in favour of a few, then it is fine. But if the odds are changed the few get upset.
Millennials and GenZs are the traders of the future. They work through different media and in different ways and have power in numbers. Social media allows the instant democratisation of information which, if it is correct, can make or break markets. The way the markets has responded is to try and ringfence the past instead of looking at ways to build the future, which is not sustainable.
The truth is that ignoring GameStop is a gamble institutional investors would be foolish to take?
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