Robinhood plays Sheriff of Nottingham as it pauses GameStop, AMC, BlackBerry etc stock sales, gets sued The populist online investor uprising to punish Wall Street traders by propping up shorted stocks hit a wall on Thursday when retail brokerage firm Robinhood announced that customers could, for now, sell but not buy eight turbulent securities. "In light of recent volatility, we are restricting transactions for certain …
For those who don't get what is actually going on re GameStop and Wall Street/Joe Bloggs and Jane Doe and the Elite, here is very entertaining and instructional short video :-) for you to enjoy and educate yourself with in these very strange times, with everyone having so much extra free time on their hands to exercise new skills and experience crazy thrills :-) ........ Wall Street Elites DESTROYED, Beaten By Redditors At Their Own RIGGED Game
And who is to say such shenanigans are not to stay and multiply?
You should read up on Cramer.
He got into a bit of trouble a few years back... (Seems like a decade ago)
He had his show and he actively talked about stocks he held in his portfolio without disclosing that fact. Price goes up because people who followed him bought... he sold made a profit.
Now when you see fund analysts talking... they disclose that they have a position (long or short sometimes) when they talk about a stock.
Word is that WSB on Reddit went private so that they could deal with a million (hey, that's what's being reported) bots spamming them with bogus trade recommendations.
Apparently the SEC are also investigating them. Hopefully they'll also be investigating the brokers that stopped allowing stock purchases but only for specific stocks, let alone forced stock sales.
Don't mess with the SEC. Seriously, you're better off bunkering up and telling the FBI you're manufacturing meths than going up against the SEC.
If everyone knew they were manipulating the Stock by lending all the available stock and shorting it, then why did the SEC not intervene? As far as I know, that is llegal.
Now they blatantly alter the price by not allowing buying the stock, and this is not only this app, this is a general thing, and.. nothing?
I seriously doubt they would do anything.. did they do anything when they were trying to bankrupt Tesla? No.
Well, the public announcements are what I wanted to see.
The Commission will closely review actions taken by regulated entities that may disadvantage investors or otherwise unduly inhibit their ability to trade certain securities.
-- https://www.sec.gov/news/public-statement/joint-statement-market-volatility-2021-01-29
It'll be weeks or months before we hear the results of those reviews.
They are manipulating the price by not selling stock when the hedge funds that shorted it all need to buy
Supply and demand, surely? You want it, I have it, I can make you pay through the nose for it if I want to, especially if I know you've put yourself in a very risky position to do so. The American Capitalist Dream™.
Any lawsuit will be peanuts in comparison.
More importantly, Robinhood can take the hit for “the team” because it can go under in a lawsuit, the customers get almost nothing, and the execs can be compensated by the hedge funds, who just want the trading to stop.
Corrupt to the core.
>More importantly, Robinhood can take the hit for “the team” because it can go under in a lawsuit, the customers get almost nothing, and the execs can be compensated by the hedge funds, who just want the trading to stop.
Robinhood will get off, although it will go bust/be-quietly-renamed when all it's users realise that they aren't paying and so aren't the customers they're the product.
A few of the Wall St bets crowd will be convicted of illegally offering financial advice because their posts of diamond hands emojis didn't have the correct legal disclaimer.
Millions of ordinary people will continue to get poorer because they will 'invest' their money in zero interest savings accounts, because the market is all rigged
It's not conspiracy from the hedge fund. I wish that both such talk would face reality, and Robinhood would do a much, much, much, much better job at describing their decision mechanism as to why they stopped trading.
The problem wasn't that hedge funds pressured Robinhood to stop trading (shock! No conspiracy!) The problem was that Robinhood, as required by SEC regulations, had to have a certain amount of liquid equity on-hand to cover every trade (trade volume) that they are responsible for. Robinhood simply ran out of money (equity) needed to cover the volume that the GameStop traders were trafficking.
Simple.
It is why Robinhood had to secure an additional $1 billion in equity just in the last 2 days, in order to cover the trade requirements.
https://www.nytimes.com/2021/01/29/technology/robinhood-fundraising.html
It was simply a business decision of this: Do we suspend ALL trades in order to not violate SEC rules regarding our cash reserves, or do we temporarily block only the symbols that are causing our cash crunch in order to allow other users to keep trading??
Simple. They took the path of lowest impact. No conspiracy. No hedge fund lackies pushing for...anything. Either dial back trading, somehow, or have to kill everything unless and until we can find more money to back up our trades.
So people really need to cool it with the doom-and-gloom of "Evil money empires crushing the little guy!" The day traders simply pushed Robinhood's system too far, too fast, to the edge of the rules.
>Robinhood, as required by SEC regulations, had to have a certain amount of liquid equity on-hand to cover every trade (trade volume) that they are responsible for
Really?
So Vanguard and Blackrock must have roughly the US GDP, sitting in cash in their vaults to cover their AUM.
Are you sure you aren't confusing this with the plot of Ocean's 11 ?
A couple of things there.
First, bots making recommendations tend to promote pink sheet stocks.
That sort of thing died down because its very easy to catch someone doing it.
(Trivial really)
You know the traders because all trades are recorded with both parties known.
(Whether shares or options) You can also track down the spammers. It gets easier when you start with the guy who just make $$$$$ on a trade.
The other issue of the SEC going after the guys on Reddit. Yes that's going to happen.
The issue is that they acted in concert to manipulate the stock price.
(Something you can prove by reviewing the posts in the group.)
The rich hedge funds do not act in concert to manipulate the stock. They are big enough to act alone and when there's chum in the water, sharks will congregate. (Chum being the company in trouble.... sharks being the hedge funds.)
There is nothing illegal if you make a decision to buy or sell on your own. There is something illegal if you collude w people to buy/sell in an effort to manipulate the stock price.
With respect to the brokerage that stopped trading...
This may actually be legal. It depends why it stopped taking orders on certain stocks. They claim that they couldn't handle the wild volatility yet they could take sell orders only. I believe the SEC will look into it but will find nothing illegal.
What the guys on Reddit did was interesting. Could be legal or not.
If you look at a company with a high number of shares shorted, and you want to force a short squeeze, you can buy options. While the option price isn't tied directly to the price of the stock, it can influence the price. Large enough positions can force a squeeze on the short sellers who now have to buy back shares at a loss.
That's what they did.
IMHO it would be legal if they said... "Hey look at the large short position in Gamestock... " and they individually applied this strategy... legal. If they said hey guys, lets buy a bunch of shares and options to go after these short sellers... this IMHO isn't legal and would catch the eye of the SEC.
Now you could look at the list of companies and their relative health and shorted shares ... then make purchases on options 90 days out. If enough people follow this strategy... independently... there you go. Legal.
If they do hold, this could put a lot of light on things that were supposed to stay in the dark. Not that they weren't already "out there", but this is undoubtedly light being shined on shadowy type players that WERE just half understood household terms, like "hedge fund". Now everyone, even your grandma knows what they are and no matter how they recover they will have much more attention on them.
Regardless, Robinhood has a lot of explaining to do. The article mentions the mythical Terms of Service that nobody reads but, I'm not so sure how well those hold up when the IRS (always... always) and the SEC is involved. The move they pulled does seem like a favor for "friends".
P.S. I really didn't understand how hedge funds worked before all of this, now I know more than I want to.
>P.S. I really didn't understand how hedge funds worked before all of this, now I know more than I want to.
Just like casinos, loan-sharks and organised crime - if the casinos, loan-sharks and organised crime bosses also sat on the committee regulating casinos, loan-sharks and organised crime
Sorry, you don't really know much about how things work.
The truth is that most people do not, unless they are in the business.
Nothing is really going on in the dark.
The markets are really heavily regulated and its even easier to pick up on the cheats.
I mean its really easier w all of the data and now AI/ML to look at patterns of fraud.
Here's a good example. Robinhood for example ... free trades for the retail investor. (That would be you or I trading our own money.) The reason they can do this is that they are working w Citadel Securities... who also works with other brokerage houses to clear the trades and gets the data of the trade in real time before the trade hits the exchange.
Now Citadel Securities is handling the trade. They could do what is known as front running... that is to make a trade before for your trade to capture some of the potential profit. That is illegal and because of their position, CS is heavily monitored. Note while that sound ominous and hard to do... its not. The SEC knows every bid/ask and trade that goes thru CS so they could pick up on a pattern of illegal trades quickly.
What the Hedge Funds did is legal and well known. Its a highly leveraged practice because someone has to own the shares that the funds are shorting. Note that the companies than lend the shares will make trades to help offset the risk that they have.
When a Hedge fund is to leveraged and gets caught in a short squeeze, its not a good thing. (At least from their perspective.)
W.R.T Gamestop, the funds involved made a dangerous bet. If there is a sudden and large move in some of the options, along w stock being bought. The market can move against them and then it crumbles as they have to close out their short position. If no one is selling, the share prices go up.
The irony here is that there's more news on Gamestop and the reddit crew than when things like this happen all the time. I mean when people (retail investors) lost their shirts in Oil it really didn't make a lot of news.
To be clear, the SEC is going to investigate those on Reddit. However if you were not on Reddit and saw and did the same thing... it would be a totally legal trade and nothing to worry about.
If Elon Musk was liquid... (World's richest man has all of his money tied up in his companies...) He could easly wreak havoc.
With respect to Gamestop... the stock was around what ?$17.00 and driven down to $5.00.
If you look at the company's fundamentals, once the dust settles, $5.00 a share would be a good price to get in... They need to do a bit of restructuring but could be viable. Not everyone wants to download their games over the net, right? So a brick-n-click strategy could work.
It may be heavily regulated, but the regulations don't mean jack when tens of thousands of people are being forced out of their homes because the folks that bought their notes wrote themselves $100000 checks against the notes and then skipped town. Just how many people went to jail over the 2008-2009 "crisis"? The feds dumped trillions of dollars into banks?
Pull the other one.
Average investors can do okay if they can put the money in for 20+years, maybe rebalancing every couple of years. Otherwise, you are cutting your hand before diving into a shark tank.
Gamestock didn't issue any new share...
But in the time of Robber Barons however...
I suspect that by "dark", the Op wasn't implying that those who needed to be in the know. (Coof thee SEC.), but the average pleb on the street, who is kicking themselves for NOT having dumped every cent into Gamestonk in 2020, when it was still 2.80$(USD), a Share.
Actually there's this thing called Rule FD.
Essentially trading on non-public information is illegal.
What the Reddit gang did was to find an opportunity where the short position was overextended. Meaning that the stock price was depressed relative to the actual value of the stock along with an extremely large short position.
The hedge funds shorting played a dangerous game.
Got too greedy.
What the Reddit group did was collude.
What the SEC will do is going to be interesting.
But for many... if the SEC goes after them... trying to fight... will cost more than they made in terms of profit.
How the markets work isn't a dark secret.
Takes a bit of research.
If you're going to play options... then you need to read Hull's book.
...an insurgency against the financial establishment and the status quo.
Some of them (most of them, maybe) see it that way, and the general public are buying that line; but the majority of those insurgents are in the process of losing their shirts. It's called "pump and dump" for a reason. The regulators' single most important function is to maintain the operation of orderly markets. This has not been an orderly market. The "ha ha, some hedgies have blown up" angle has left a lot of small investors holding wildly overvalued stock. The next trading day or two are not going to be pretty.
Anyone else here old enough to remember when BBC2's Money Programme ran a fantasy share buying game with four random amateur investors? Before long, whatever they tipped on Sunday night was shooting up on Monday morning, regardless of fundamentals, just because it'd been tipped. The segment was hastily cancelled.
Well, yeah, though that doesn't contradict what we wrote. See yesterday's piece on the risk at least some people are unwittingly taking.
Some people are doing this to give Wall St a middle finger. Some are doing it to pay off medical debt or make life-changing sums of money. Some people won't get very far at all. It all amounts to a rebellion against the status quo, though, in our opinion.
C.
It is a rebellion - beating these assholes at their own game. Patrick Byrne must be beside himself with joy watching these shorts get taken down, wishing WSB had been around when he was being put through the ringer. But don't worry - all the rules will change overnight to make sure the plebs can never do this again. Got to protect the neighborhood you know, or pretty soon undesirables will be moving in.
How is this a rebellion when what they did would be a legal trade short of collusion to manipulate the price of a stock.
Look, if you're Elon Musk, who hates shorts... and had enough capital, he alone could have done the same thing by exercising a block trade of shares and a series of option trades. (As long as they fall within SEC guidelines and if too large, he filed the necessary paperwork.)
That would have forced the short squeeze and he would have walked away will millions along with the institutions who lent the shares to the short sellers.
The point is that the only issue is when you get a bunch of people working in concert to move the stock price. (Note: This means that they are actively talking and have a plan on how to invest. Not a group of people who happen to be seeing the same indicators and then acting on it.)
So how is this a rebellion if people are playing the same game as the short sellers but this time got the upper hand?
And to be clear... there are a couple of companies who's share prices and outstanding short positions are ripe for this type of reversal and short squeeze. So its not something you can do over and over unless the short sellers continue to do the same thing.
The one guy who had to go to black rock (I think) was over weighted on his short position. Got too greedy.
What the article didn't point out is that this appointed general (DeepFuckingValue) has been playing GME in particular since at least June of 2019 and others started playing months after. So, all of them didn't jump in at the exact same time, which is how every article everywhere appears to be covering it. The hedge funds have been playing back this entire time, that's clear, but once the masses jumped onboard the hedge funds were finally out maneuvered.
Call it strictly orchestration, but I feel it's more orchestration via happenstance. You can also argue this only happened because the masses jump onboard, but then you might want to look at how much was made before the squeeze hit as the masses just simply flipped the winner. Go look at the profiles of some of these top "winners", they're not hiding it, hell many have screenshots going back at least 13 months with these stocks in them.
As everyone is implying, it is VERY ironic that hedge funds have been playing this whole time, but only started crying once they started losing... even with the same stocks they themselves have been playing.
unfortunately, it's going to be very short-lived, and "the humanity" will get is
- a Senate commission to sit and fart in their chairs for another 5 years
and
- a crappy Hollywood movie
and
- current trading system gets inoculated against similar moves so that current "situation" doesn't happen again
I hope I'm wrong :(
Yesterday's piece was written by someone who didn't do a good job explaining or digging into the details of what happened. He's not alone because there were many journalists making bad analogies to try to explain what happened and why it happened.
This is a complex story.
You have the group on Reddit who may or may not be in legal trouble. (Most likely they are in trouble depending on the posts.)
You have Robinhood which allows trades for free because of how they transact the trade thru Citadel Securities (And they are not alone)... And how Robinhood limit trades on certain stocks. (This could be legal or not)
And you have the underlying issue of hedge funds and stock manipulation that they do which is actually legal if done properly. (And the underlying strategy that the folks on Reddit took if they did it properly. ) [Note: Elon Musk could also do it if he was liquid]
The sad truth is that we now have members of Congress who have their own agendas jumping on this as a way to promote their illogical views.
Playing w options has a lot of risk. Its an all or nothing bet. If you are going to do it. Read Hull's book. It may be dated, but still worth it.
Posted ANON because I actually had to have conversations w the SEC over a certain company and my trades and public comments. So yes, I know a bit more than I care to talk about.
Uhm...
Its a matter of what goes up, must come down.
Gamestop was over 'shorted'. So when those who shorted the stock unravel their positions, the price moves up. There are a couple of factors on how fast and how large a bounce will occur and eventually the price will hit a normal plateau.
To be fair. Anyone trying to get in on Gamestop after that massive run up would have lost their money.
The only safe bet would be to buy a put at a fraction of the market price. (e.g. If the stock is at $300.00 , buy the Apr Put for $150 - $200 range, depending on the price.)
You could later sell the put when the price goes below $150 or you could exercise the put. (American options are different than European options.) So you would make money. However... the key here is that there was a lot of volatility. One could short the share at the new sky high price, however many either cashed out so there were no takers. (And that's where Wall St. steps in to help make a liquid market.)
This isn't a rebellion against the 'status quo'.
Just a bunch of computer geeks who are locked in with too much time on their hands. ;-)
Their only crime...
First they were too successful on the squeeze.
Second they openly talked about their plan and conspired to manipulate the market.
As with most things... Stocks are a risk, always have been, always will be. You pays your money, and ya takes your chances. timing is key, and the time for this instance has passed. But, armed with this new knowledge its up to you, and me to do some homework to find the next opportunity.
And getting back to point one. YOU NEVER BET MORE THAN YOU CAN AFFORD TO LOSE. Which is almost certainly why the Pleb Classes, never get to buy 800$ Stock(s), in Google, and these rare opportunities, just pass most people by.
Plus never discount the notion, that most of these People are not looking for a return, and just want to watch Melvin burn!
"many people are buying those stocks just make those pigs squeal, with the full intention of just burning this money for the resulting shadenfreude"
Did you see Tucker Carlson mocking AOC for being scared, despite the fact that one of the people who threatened to kill her was one of those who got inside the capitol? https://edition.cnn.com/2021/01/23/politics/garret-miller-capitol-riot-threaten-alexandria-ocasio-cortez/index.html
Just when you thought Carlson and Fox couldn't get any lower...
I'm not sure if people, politicians in particular, should be praised for throwing around the word "murder". I found the comment to be possibly inducive of moral panic or at the very least fanatical, which can be seen ironic considering what the comment is directed at. I stand on the idea of tearing down the stereotypes of women, but her comment doesn't add to that foundation as being strong isn't being snarky.
Of course, Trump was president so maybe all politicians will start talking openly about murdering in some form or another... good times ahead :-/
I happen to come from a country where a few years ago a journalist was murdered to try to prevent her exposing a hugely corrupt government. The government-party organised trolls had been on her case for years to the extent that half the country that supported the government hated this journalist, vilified her as a "witch" etc even though they probably hadn't ever read a word she had written. After she was murdered there were even those celebrating.
So, yeah, all those online threats that you think are harmless are certainly not so for the recipient. If someone who has threatened to kill me has stormed the building where I work after the party you work for (and possibly you personally) have incited them against me, and you didn't raise a finger to stop it, and even after that you voted for the madness that that violence represented, hell yes I would be pissed, and hell yes I would be justified to use the word 'murder', and hell yes I would tell you to go eff offf. 'sit this one out' is far too diplomatic.
Or are you waiting for people to be actually murdered before one can use that word??
Left wing nut jobs have been threatening to f*** or kill Thatcher for nearly four decades. What is bizarre is that it's considered acceptable and not a real threat. There is a real double standard here, when it comes to left and right wing fruitloops, the media often lets fringe Labour lunatics get away with it "because they're nice people", no they are not.
Imagine the situation in reverse. If a bunch of hedgies piled in to drive the price of an ailing company to a clearly artificial level at the expense of a bunch of small time day traders and retail trend followers, prosecutions for market manipulation would follow.
I am not an expert on US markets, but colluding to create an artificial price (especially if the intent is to inflict margin calls or to hit an option strike) is a breach of securities law in most countries. Doing it on a public Reddit forum doesn't make you exempt.
Brokers like robin hood have a duty to their retail clients to protect them from situations where they do not understand the levels of risk they are taking, as well as to prevent any trades where they have reason to believe their client is acting illegally or trying to manipulate the market. This is likely why they blocked trading. They could well be in breach of their regulatory requirements if they didn't.
Trying to corner the short sellers is not a new thing. Google the title of this comment for an old example.
>>>Imagine the situation in reverse. If a bunch of hedgies piled in to drive the price of an ailing company to a clearly artificial level at the expense of a bunch of small time day traders and retail trend followers,
OK. So a normal day on Wall St. Go on ....
>>>prosecutions for market manipulation would follow.
Oh the naivety.
Uh huh. So could you explain, why do you think Gamestop is fundamentally worth as much as IKEA?
That's the bottom line here. What is the company worth? What would you pay for its assets and its business?
There's not the slightest doubt that the answer to that is "way, way less than current valuation." Nobody even tries to argue about that. Which means the current valuation is clearly unrealistic and unsustainable. The key word being "clearly".
And no, that is not "a normal day on Wall St". Collusion to manipulate a stock price is illegal. And for good reason.
"So could you explain, why do you think Gamestop is fundamentally worth as much as IKEA?"
yes I can: for the exact same reason that Tesla is worth as much as Ford despite selling 1000 times less cars. (I didn't look up the exact numbers, but you get the point). That's called a speculative bubble and happens all the time ... except that most of the times it's the big fat porks that get to make money from it and the small retailer gets to foot the bill: this time around it was different so it had to be outlawed ?
Who do you imagine these "rich" are?
Sure, the fund managers are well paid - ridiculously so, much of the time - but this very story illustrates why this is. It's an extremely high pressure job. I wouldn't do it, for one.
But they're not betting their own money. They don't just pocket the gains, and they won't sustain much of the loss either. Remember, it's a hedge fund.
The real money involved here - the billions, as opposed to mere millions - belongs, mostly, to banks, pension funds, charities... They're the ones who will be out of pocket from this fiasco.
The stock valuation is not worth what Ford is worth. The stock value of Tesla is worth more that Ford, GM, Toyota, and Nissan (and possibly others) combined. While people such as Warren Buffet talk about fundamentals, people who invest in companies like Tesla whose price/earnings ratio are ridiculous are not making rational decisions, they are making emotional ones. I invested in R.I.M. years ago and watched the price go crashing down thanks to short sellers, so you will not see me shedding any tears for there losses.
Tesla at least has a business plan that creates the possibility it will grow into those sorts of earnings. Crucially, it also lacks the weight of historical liabilities that crushed GM - the unfunded pension promises, the long history of commitments and favours and expectations that basically every company accrues over time.
I presume it will acquire these, or similar liabilities, as it grows - but as yet it's relatively unencumbered by them.
It's also, of course, brutally defended by Elon Musk, who protects and nurtures the share price with a reality distortion field that rivals that of Steve Jobs in his prime. And who also, I notice, did his bit to pump Gamestop.
I doubt that Tesla will acquire any employee expectations - Musk is moving the company to Texas in part because the local sheriff threatened his Fremont plant for forcing employees to work during a coronavirus "shelter in place" order. In Texas he can screw them royally.
https://www.wired.com/story/sheriff-tells-tesla-not-essential-musk-thinks/
It's only now 'worth' that much because the hedge funds upped the stake by betting heavily against the company. In poker you can have a very high stakes game with everyone holding low value hands, and this situation in the market is more like a casino bet than a valuation of the company.
Collusion to manipulate a stock price is illegal. And for good reason. ..... veti
Oh? How very strange then, veti, whenever if illegal there appears to many to be no discouraging punishment available and applied to those engaged and proven to be instrumental in the practice.
Indeed, it appears to a great many to be extremely rewarding rather than anything else exceedingly unpleasant and designedly punitive.
Surely shorting stock as it is widely perceived and accepted is virtually identical and akin to collusion to manipulate a stock price to generate and enrich a third party essentially then a criminal profit?
Does the SEC/Federal Reserve/Wall Street/FBI/dumb schmuck in the street not see it so? What are they all on?
Shorting stock is not collusion. It only requires one party making the decision to take the risk.
And as discussed ad nauseam already, it's a bet. It can be won or lost. This idea that hedge funds have some kind of sorcery that makes them immune to losing such bets is sheer fantasy. They lose them all the time, it's just that they don't like to brag about it when it happens.
(It's true that they do win more than they lose. If they didn't, they'd be out of business. But that is not proof of cheating: it's evidence that, actually, they really are better at this game than Jo Random on Reddit.)
Ok, we will have to agree to disagree on the finer points of that older point to be further discussed by some/many others ad nauseam, veti, but moving on a tad ..... it is surely impossible to deny that there is presently a hell of a lot of collusion going between traditional conventional market players and regulators to ensure future shorting bets are more secure in a rigged system to protect established vulnerable to flash virtual mob players seeming to suddenly appear out of nowhere to invest in a distressed commodity/targeted failing entity.
So what do you call it when hedge fund vultures pick on a company to short, knowing full well that their very action will cause people to panic and sell, thus creating the very situation they "predicted".
They're happy to bankrupt companies and make people jobless just to earn a few more millions.
The shorting was the manipulation, not the resistance to it.
They don't "know full well" what will happen. Sometimes they win, sometimes they lose.
The stock price at a given moment is supposed to reflect a consensus on what the company is worth. If you think that consensus is wrong, one way or the other, you can place a bet on its changing in your predicted direction. That's what shorting is.
Like any bet, you can lose.
But if the answer was clear cut, so that you could be sure, then the consensus view would already have absorbed it, so the movement you're betting on wouldn't happen. To make money, you need to either have more information or be better at analysing it than most other people.
"They don't "know full well" what will happen. Sometimes they win, sometimes they lose."
The hedge funds are professionals at this. They might not know 'full well' exactly what will happen, but they actually have a pretty good idea what will happen and with what probability, and intend for exactly that to happen. Most times they win, very very rarely they lose.
> is supposed to reflect a consensus on what the company is worth
"Supposed", indeed. The idea is so 19th century... Today the stock price just reflects the money you think you can squeeze out of it, manipulating it one way or another.
The proof being the countless very creative methods to make money out of stock, without anyway helping (actually often harming) the actual company issuing it.
Like another article rightly said, stock isn't anymore a way for companies to get additional funding, it's just a huge casino where the big actors can fleece small investors: The money some win needs to be lost by others, doesn't it (yes, bubbles, but those are special cases).
Imagine the situation in reverse. If a bunch of hedgies piled in to drive the price of an ailing company to a clearly artificial level at the expense of a bunch of small time day traders and retail trend followers, prosecutions for market manipulation would follow.
If you had stopped there it would have been a classic example of poes law.
I'm sorry, but a financial market that allows you to bid for stock with money you don't have is a broken institution.
The world needs to take a step back and end the madness. There is no excuse for allowing stock market operations with money that you do not own.
Take out a loan, sign up with a bank, by all means. But once you put money in this roulette operation, it should be yours, not someone else's promise.
"a financial market that allows you to bid for stock with money you don't have is a broken institution."
it's worse than that: they sold stocks they didn't have, so they had to borrow them with money they didn't have. It was all vapourware, and when it flew around their ears they cried for mum (i.e. the same regulators that they despise otherwise).
But that's the whole point of shorts and how Hedge funds work.
They borrow equities from an Entity that owns them for a set amount of time and sell them at a price, betting that the price will go down.
Once the prices has gone down far enough for them, they buy back the equities and then give them back to the entity they borrowed them.
Along the way they generate money by the difference in equity price between the value they sold it at and the value they bought it back.
If the price goes up, when the borrowing amount of time expires they have to buy back the equities they borrowed to give them back to the entity they borrowed it from. And in that case they loose money. that's the particular WSB used, they artifically raised the price of the equity ( Gamestop ) a specific Hedge Fund was heavilly invested in through borrowed equities betting that the price would go down. Since the price didn't go down and kept going up at some point the Hedge Fund had to cut it's loss ( or the borrowing entities asked for their borrowed equities to be given back ). This made the Hedge Fund loose billions.
Since Hedge Funds have been manipulating the markets for years, it's a huge FU message sent their way.
Two things shouldn't exists :
- Hedge Funds
- Equity Borrowing
This would solve a lot of market manipulation and actually bring the market back to actually looking at the fundamentals of a given company in order to invest or not instead of the completely disconnected Lalaland it lives in right now.
Using your logic... taking out a loan for a car would indicate a broken institution, or a mortgage for a house.
Sorry but you really need to learn more about the markets to understand how they work.
Talk to a broker about how to set up margin on your account. ;-)
There are rules in place which is what can cause a short squeeze.
This isn't the first, or the last. Also playing w options and futures can be a dangerous game. There were a lot of small investors who got nailed in the oil markets and lost a lot of money because they thought that they knew what they were doing but didn't.
https://www.ft.com/content/3ed827e0-2a23-11e7-9ec8-168383da43b7
Financial Times. Paywalled, though.
At some indeterminate point in the future, people will realise that the share price is not justfied by the underlying fundementals of the company's business and the price will then collapse, with the late entrants left nursing very large losses.
Who's to say that this Pump & Dump operation hasn't simply been driven by other professional traders?
.... if one were to popularise and infantilise the SEC, would Darth Vader be an accurate depiction of their true nature and relative position in the Securities and Exchange Universe?
Now that Wall Street whales' blood has been shown to be so easily spilled in the deep and dark waters of dead rich pools, why ever would anyone never think and not realise that even greater swarms of sharks are to return again and again to feast in feeding frenzies? Such is surely inevitable and quite natural?
It is just the simple way of the internetworking of things and active since before even time became a measure of distance in space.
To think IT otherwise renders one extraordinarily disadvantaged and disenfranchised.
I've seen surprisingly few people point out the obvious problems with Gamestop. As internet speeds increase, particularly with the ps5 being download only (I think?) isn't it a rather bloody obvious short, that if the market moves digital, Gamestop will become another kodak/VHS company?
Shorting is a funny game, some of it murky and politically/nation based. Where it gets tricky here, is that Robin Hood has an unusual income model, where you can't fail to ignore the reported ~40% of it's income comes from algorithmic trading from the exact hedge funds that were betting against Gamestop. It boils down to, did those hedge funds collude to request this change of policy? In which case, sec would probably be forced to take action.
This kind of pump and dump scam is toxic in both directions. I'd like to think you know the risks and take your chances on these type of investments. They are literal gambling where the punters snd ptofessionals can influence the outcome.
Hi - you are correct and I am aware of this. But perhaps I wasn't clear on my meaning.
I was referring to the fact that Robinhood is a "no fee" dealer. On one hand this is great, but it goes back to the Facebook operating model - if it is a free service, how does it make its income?
The answer is quite complicated for your average punter, but basically Robinhood trades in off-exchange 'dark pools' (away from regulatory scrutiny of the public exchanges). This article explains it quite well, they are basically charging algorithmic hedge funds, for advance visibility of the order flow within the Robinhood platform.
The core idea being, if you can see visibility in advance (1-10 seconds) of the market order books (and future trade direction), the algos can theoretically get an edge on their competitors. To the average punter this is meaningless, technically they are getting a free/cheap service, they may get a better price for their shares, while the algos cream a few pennies off each trade (but multipled by billions of trades...it adds up). Link:
https://www.cnbc.com/2019/04/18/a-controversial-part-of-robinhoods-business-tripled-in-sales-thanks-to-high-frequency-trading-firms.html
"did those hedge funds collude to request this change of policy?"
of course they did. Did Goldman-Sachs know before 21. september 2008, when they changed their status overnight from investment bank to retail bank, that the FED's Henry Paulson, a former Goldman Sachs director, would only save retail banks after the financial meltdown ?
"In which case, sec would probably be forced to take action."
forced by whom ? Jeo Biden who has received billions in donations from Wall Street ?
Ha, yes, nothing focusses the mind (and fills suitcases with cash for bribes, errr, I mean cash for key consultancy advice/advertising) better than losing £400m in a week.
I find Goldman Sachs problematic in general at a political level, although the few people I've met who worked for GS are actually decent intellectual people (no obvious lizard features or child cannibals), but commonly found working 12 hours and getting the early divorce to add to their CV.
The practical reality, is if there is a way to make money and it is legal, most individuals and companies tend to do it. Although frankly Goldman got caught with their trousers down during the Malaysian corruption scandal (was it a $3bn fine?). I think it would boggle the average humans mind, that Goldman made $600m on that $6bn deal, by bribing politicians and selling "investment equity" to investors, while taking a cool 10% top slicing of the investors money. It's borderline theft (while probably not technically illegal in itself?).
I've seen surprisingly few people point out the obvious problems with Gamestop. As internet speeds increase, particularly with the ps5 being download only (I think?) isn't it a rather bloody obvious short, that if the market moves digital, Gamestop will become another kodak/VHS company? ..... low_resolution_foxxes
The eventual fate of GameStop in this epic shorting saga is of no lasting significance or of great interest to market players/investors/daytraders/whales/sharks/minnows/pirahnas ... call them whatever you will ...... for they are/were simply a very convenient and timely conduit, [or not so, if one suffered massive unexpectedly devastating losses in a recklessly speculative bet against competition and opposition realising both your fundamental greedy weakness and vulnerable position taken,] allowing market access to another unsuspecting high value target with more money than sense to extract for profit and fun.
You know, nothing really new ..... akin to business as usual and just like a good ole brokers day in the hood rather than confined and constrained in a high rise of a Wall Street office block .... although that might be a little different and something new to get used to if nothing fundamentally changes in the sector.
"Game's over and I'm taking my ball home!"
"It's not your ball, it's mine, you just borrowed it and then sold it to me. Now I want the ball you borrowed back. Tell you what, I've got one here you can buy. Gonna cost you though.."
Good thing you can only borrow the ball once. Oh wait....
Some would say that the real market manipulation is the government bailing out Wall Street every time it fucks up and proves itself unfit for purpose.
Just summarising the views of the people doing this to hurt wall street there. Remember, American workers didn't get a furlough during covid but Wall Street got trillions. People are angry.
And they have every right to be angry. But piling good money into a pump and dump scheme is hardly a constructive way to channel that anger.
Let them vote out the politicians who stood against furlough. Let them impose new forms of taxes on Wall Street. Those would be useful and meaningful ways to respond. Throwing good money after bad into a pyramid scheme is not going to do anything except make the poor that much poorer.
"Earlier this week, online activists, amateur investors, and others weaponized shares"
OK, so what? How is that different to all of the major investment banks colluding to weaponise bonds that were backed by subprime mortgages and other risky loans and packaging them up into even riskier derivates such as CDOs and such like - and then selling them onto other investors; but then, those very same banks knowingly buying millions in CDS contracts to bet against those very same investments that they had sold? That, in a nutshell is the global meltdown of 2008.
As an active day trader myself via the Tradezero platform I can get in and out of long and short positions in seconds and I find this whole Gamestop thing amusing. I was annoyed when I missed the opening salvo when it went from $10 - $33 in about 40 mins last week, but then I just watched with a wry smile as it has continued to move and move, knowing full well it was due to crash.
If this sort of David Vs Goliath stock battle becomes legitimised, and hedging becomes a largely unsustainable business model what would be the effect on the markets and commerce in general.
Would we be in a better world?
(I understand in the real world the little guys will get crushed by the politicians that live in their pockets but humour me with a thought experiment)
"Would we be in a better world?"
did you ask yourself the question who pays for all the billions that the speculators make on Wall Street ? Since they don't actually produce anything, someone has to pay for this "wealth". So if they disappear, then that's so much more money for other people.
Therefore yes, most of us would be in a better world.
This might then amuse you somewhat, 0laf, if you think tilting at windmills is akin to, in the real world whatever that might actually be, little guys who get crushed by the politicians that live in their pockets running thought experiments, which aren't AWE*some sanctioned and supported with MODified defences and special forces.
amanfromMars January 29, 2021 at 08:07 [2101290807] ...... sowing almighty seeds in a string of comments on https://www.craigmurray.org.uk/archives/2021/01/my-sworn-evidence-on-the-sturgeon-affair/The lighthouse being a symbol of a fixed peg firmly rooted into dry land. God forbid anyone could conceive of Democracy as easily manipulated or moved by public opinion. The state is a stable entity, supported by electronic algorithms, against any ignorant fluctuations of public opinion. Plus, the bottomless pit of debt caused by the pandemic means that nothing must change for another 40 years. Put it in your mind. ..... Giyane January 29, 2021 at 04:14Some folk would actually believe all of that being true, Giyane, with others more sure they be much more certainly out of their minds.
Things nowadays though, and forever more into the future, will be completely different from the past which with its memories plaguing and paralysing the present, create madness and mayhem to market and chaos and conflict in markets, for greater effective universally applicable controls have shifted into the command of significant A.N.Others.
:-) There is priceless stealth ensuring guaranteed security of safe passage of future plans and missions delivered to that revelation in most folk not believe all of that being true, even though it be crystal clearly advised to both them and A.N.Others on ACTive Duty in Myriad Assorted AWEsome MODified Fields of Vital Virulent Endeavour. :-) I Kid U Not.
And you know what they say about such things .... If you can't or won't or don't trust anything said to be honestly true and indisputable, simplying verifying it from another source of other sources easily proves or disproves its veracity.
* ....... Army Warfighting Experiment
theguardian.com/technology/2021/jan/29/facebook-shuts-popular-robinhood-stock-traders-group-amid-gamestop-frenzy
which is quite ironic on at least three levels, firstly, their oh-so-ultra-fast reaction (to reinforce popular conviction that they're "all" working hand in hand, wall street, the govs, the social media platforms, etc, etc), secondly, because they declined to provide any proof (to reinforce popular conviction fb press the off button as they see fit, nothing to do with their oh-so-conscientious "rules", see above), and thirdly, because this will serve as yet another thunderclap against fb when it comes to the "social media" public trial(s) worldwide, and that storm IS coming...
What's really 'great' about this story is that robinhood is partially owned by the very hedgefund that bailed out the other hedge fund who had the worse short positions. So by Robinhood stopping buys, it could be argued that they effectively popped the bubble, meaning potential large profits for the same hedgefunds.
The system works. Yay.
"The system works. Yay."
Indeed, the billionaire hedgefunds are protected. Just as they were bailed out by taxpayers after 2008. But try getting $2,000, nay $1,400 assistance, sorry I mean STIMULUS, and you're sh*t out of luck.
US culture has celebrated beauty, fame and wealth so long, they've forgotten what it must be like to be "ordinary".
If there is zero brokerage then the volumes will be higher. No longer can the high frequency traders however take a position based on the limited number of trades that were executed by those that were closing out their positions on a daily basis. Also the increase of muppets in the trading pool has increased liquidity and volatility, which has helped the day traders. Well done to them.
Ok,
There is a lot of misconceptions here on what is legal / illegal and why. Or how its ok for a hedge fund to short a stock, while its not ok for the 'little guy' to take the reverse position. Or how could someone create a short squeeze.
First, its illegal to collude to manipulate a stock price. Depending on what you say while in a chat room, or message board, etc... you can be breaking the law. It will depend on the content of your post, and any position you may have. And also what you do with your position after you post a message. (There's also the legal issue of intent but that's an additional factor.)
That said... its perfectly legal to short a stock. Or to make an options play where you believe the stock price is going to drop.
Tesla is a good example and why Elon Musk hates short sellers.
Its also perfectly legal to take the reverse position to force a short squeeze if you have enough capital and if you do not act in concert. (Meaning you and your friends plan on doing it. This is collusion to manipulate the price of the stock.)
Its important to understand that something of the butterfly effect exists in the market. Depending on the stock/price/avg trading volume/etc ... and the size of your transaction, it would impact the stock price. For example... if the share price goes up and the trading volume over a couple of days is twice the past 52 weeks trading volume... it will attract attention.
So if you want to take reverse positions of the hedge funds... you need to take a look at the company, the outstanding short position, the stock's fundamentals... among other things.
If you find a company like that... and that's what the folks on Reddit did... you can purchase shares/options to trigger margin calls on the short sellers. They will then have to buy in order to close out their position which in turn causes more short sellers to face margin calls, etc ... which led to the collapse of a couple of hedge funds because the stock price went up quickly. (Incidentally, the company that holds the shares and lends them to the short seller also profited here too.)
How much money it would take would depend on the specifics...
This would be legal if you don't act in concert. Meaning if someone on Reddit did their homework and posted the list of companies and the relevant data... then individuals made their own choices as to which companies to invest in... that would be very legal. (You should talk to a lawyer ) However... the SEC will probably look at it...
You really need to be careful on what you post online and if you trade.
But if you have enough capital and do your homework, you too could create a short squeeze.
Posted anon because I did have to have a conversation w the SEC... (I didn't break the law) and I also have worked in the industry.
So ... the short answer is .... the casino is rigged, AC?
Yeah .... that's what everyone is learning ..... with probably more than just a few now planning to rob it blind at every available opportunity. After all, it only attracts criminals to run it whenever crooked and who or what other than incestuous criminal enterprises would rush to serve and protect that?
"First, its illegal to collude to manipulate a stock price"
Anonymous Coward ... I understand, you're from Goldman-Sachs and your sh***ing in your pants, and you come here to spread FUD. Unlucky for you, people understand better these things that you wish them to.
Having public conversations is not "manipulating" the markets. What is forbidden is to have secret conversations between actors of the market. What is forbidden is what you're lot is doing most of the time, not what these Redditers are doing.
Actually, it might even be worse: if it should be known - buy your IP address for example - that you indeed are from Goldman-Sachs or any other hedge-fund that shorts stocks, then what you are doing here is ransom: "nice little way you found here to make money. Shame something should happen to it". THAT is indeed illegal.
Crikey, Zolko .... whatever was that Goldman-Sachs or any other hedge-funder that shorts stocks thinking, to come here on El Reg and believe that El Regers would wear their bullshit rather than be busily preparing in all of the backgrounds and undergrounds and dark webs that exist, that which they will be confronted with at the forefront of the future.
One just has to say it out loud and proud, for they either can't hear or aint listening ....... THEY JUST DON'T GET WHAT IS GOING ON ALL AROUND THEM, DO THEY, .... AND THAT SIMPLE FACT RENDERS THEM EXTRAORDINARILY CATASTROPHICALLY VULNERABLE TO NEW MARKET PLAYERS AND GREATER INTELAIGENT GAMERS ALIKE.
The smartest players in the room, they, the present Wall Street dependent elite? Oh please, you cannot be serious,.... and give me a quarter of whatever that is they be toking or snorting. It's smoking!
People who use Robinhood should read this:-) One item noted is this:
B. Background
Principal Trading Firms and Payment for Order Flow
10. Rather than sending customer orders to buy or sell equity securities directly to
national exchanges, Robinhood, like other retail broker-dealers, routed its orders to other brokerdealers (often referred to as “principal trading firms” or “electronic market makers”) to either execute those orders or route them to other market centers. Principal trading firms attempt to profit from executing large volumes of retail buy and sell orders either by taking the other side of customer orders and exiting the positions at a profit, which is also known as “internalization,” or
by routing the orders to other market centers.
https://www.sec.gov/litigation/admin/2020/33-10906.pdf
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