In the past couple of years, thousands of young kids with money signed up to become daytraders with an online app called Robinhood, a free stock trading platform that competes with Etrade and the bigger platforms. It makes money by frontrunning the trades, scalping a few cents off each trade.
With covid, lots of young folks were laid off, and daytrading boomed. A lot of them jumped into cryptos like Bitcoin. But recently, they are piling in on heavily shorted, moribund stocks like Gamestop, Nokia, AMC theaters, and blackberry.
They gather at a Reddit site -- "Wallstreetbets", which is heavily promoting these schemes. The kids are trading en masse and there's enough of them to now affect the market.
Pump and dump schemes are not new, but I've never seen them at this scale before. They are common in penny stocks. Online shills start hyping a stock that is "just about to hit it big". Rubes rush in to buy running up the price, then the shills sell. The last people out lose big and become "bagholders".
This morning, the extreme volume of these trades was enough to jam up the trading platforms like Etrade, TDAmeritrade, etc. They couldn't keep up with volume of orders, and the hypersonic market price changes.
GME, AMC, NOK and BB are up hugely because of this, and waiting for a crash. When the stampede to sell starts, it will overload the trading platforms again, and perhaps also trigger "breakers" imposed by the SEC. Lots of these kids are going to get their asses handed to them on platters when they can't get out of their trades at a profit.
This trading frenzy was promoted on Reddit as a way to screw over the evil "hedgies" that typically short dying companies like GameStop, AMC theaters, Nokia and Blackberry. Hedge funds were hugely "short" on these stocks, so the bidding frenzy caused them to have to cover their shorts at huge losses. At least one hedge fund has been bankrupted by it.
I don't know what the longer term consequences are for this, but I've never seen it at this scale before. It scares me a bit if foreign govs or evil cabals jump on the trend. I don't think the powers-that-be could foresee a time when warfare could be waged in the stockmarket. Imagine the QAnons deliberately trying to destroy the stock market.
A can of worms has been opened.
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