r/WallStreetBets and the rise of the amateur traders: 1990s repeat or the new market reality?

Assessing the fallout from GameStop and silver trading

Mike Sheen
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Some experts fear amateur trading spikes, such as the GameStop and silver episodes, may become more common
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Some experts fear amateur trading spikes, such as the GameStop and silver episodes, may become more common

The past fortnight has seen market commentary fixated on wild share price moves across certain US-listed stocks including GameStop (GME), as retail investors associated with Reddit forum r/WallStreetBets (r/WSB) piled in as part of a coordinated attack on hedge funds, via a short squeeze.

DIY investing boom

Due to ongoing controversies over halting the purchase of certain shares including GME on its platform, the phenomenon has been most closely associated with US retail broking app Robinhood. However, retail investors all over the world have invested heavily in GME shares in recent weeks via a number of different platforms, including interactive investor, which revealed last week that the stock was one of customers' top ten buys for January.

Head of markets at interactive investor Richard Hunter described it as "a sign of the times", with the top buys list traditionally having "tended to focus on blue chips and potential value plays".

"While the average trade value of GameStop in January was the lowest among the top ten most traded stocks…these are not small numbers," he added. "This army of keyboard warriors and those who follow them could end up getting hit by their own shrapnel and we are urging extreme caution."

Silver price

Some market commentators have pointed the finger at r/WSB for the volatility in silver over the past week after a forum post called for a ‘short squeeze' of the precious metal in efforts to ‘punish the banks'. However, the same forum has seen a backlash on this narrative, insisting it was not behind it.

Silver squeeze is 'not the same as GameStop' - managers

While this may be true, there is clear evidence of retail involvement in the silver market with The Royal Mint reporting "record demand" for silver at the end of January and beginning of February and a "surge in new customers looking for precious metals".

It also comes at a time of a broader boom in so-called DIY investing across various platforms.

Hargreaves Lansdown's results last week confirmed that Q4 2020 saw all-time highs for the do-it-yourself investor market. Boring Money estimated that there was £303bn in non-advised investment accounts as at December 2020, and a total of 6.8 million customer accounts.

CEO of Boring Money Holly Mackay said that while progress has been made by the financial services industry to offer diversified portfolios to a "younger or less engaged audience", it has neglected "to take D2C seriously as a distribution channel".

"Growth [of DIY investing] has happened in a bull market," she added. "In this climate, of course we see social media monkeys with a fistful of darts, scoring the odd bullseye.

"The core problem has not changed. Good investing is boring. Annual returns of say ‘5% net of fees' are not a bad outcome from a diversified portfolio. That is not going to animate a TikTok audience as much as someone promising immediate riches.

"We have seen so much positive change - the risks of this blowing up in our faces are real unless we do a better job of telling people how to engage and why, and taking a leaf out of the Reddit
and TikTok books, instead of telling our industry peers why they are flawed."

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