We can’t get all of our news from Twitter and memes. It’s time to bring in the experts for this one! If you haven’t heard by now, the stock market is the hottest topic. Users on Reddit decided to drive up the value of GameStop stock, which hedge funds were betting against. When the price jumped up to the 400s, Wall Streeters lost a lot of money. (Learn the full story here.) But we still have a lot of questions, since popular investment apps banned users from trading these stocks. Philip Michael sat down with the CEO of Versus Game John Vitti and the co-founder of TradeZero America (one of the only firms to not restrict the trading of these stocks) Dan Pipitone to figure out what’s going on and what it means for the future.
Is this unprecedented?
No, these games have been happening since day one on Wall Street. But Pipitone says that hedge funds are usually on the right side of the game. They took the “L” this time, and it doesn’t feel great.
Pipitone says this GameStop stock craziness is a “retail reckoning.” Regular Joe investors are called retail investors. They’re usually viewed as less savvy with investing, but they’re no longer the uninformed underdog. “No longer will the retail investor be the last to know what’s going on,” Pipitone said.
Why is Wall Street mad?
“It’s no fun when the rabbit has the gun,” Vitti said. “Finally, the people rose up and said we’re going to take control of this money and play the player.” The retail investors beat hedge funds at their own game, but of course, losing money makes people pretty upset.
Why did Robinhood restrict the trade of these stocks?
There are repercussions when people are losing money! Vitti explained that Robinhood’s bosses are Wall Street hedge funds, which is why they had to stop the trades from happening. Plus, Pipitone explained that Robinhood has capital requirements and they need to maintain their operations based on the notional trading value. They couldn’t back up those sky-high numbers because they were all fabricated by these retail investors. So, they had to restrict trading. Vitti says that the app borrowed $1 billion to support the trades, but it was only to save face.
Could this happen again?
“The angry mob, which is the free market, will do it again,” Vitti said. “There’s no rule against it.” Both of our experts say that there’s strength in numbers, and this time, the retail investors have the upper hand. They advise us to watch stocks such as Macy’s and Bed Bath and Beyond because we may have more GameStop situations there.
Word of advice: These high numbers can’t last forever. Pepitone says they already see traders not wanting to hold their positions overnight. You never know what could happen. Vitti agrees, saying that day traders are eyeballing GameStop stocks like hawks. As soon as they see a plateau in the numbers, everyone will dip out, leaving a few people left holding the bag.