A YOUNG Robinhood trader who became $6000 richer in four hours is just one of many amateurs celebrating stock wins but it likely won't end well for all, WallStreetBets’ founder predicts.
Michael Farrar, 23, spent hours trading with WallStreetBets on his computer for the first time last week, making his buy-and-sell decisions watching where the rapid-fire posts were focused, according to MarketWatch.
But it took just four hours for Farrar, from Beaumont in California, to become $6000 richer, after his decision to sell AMC Entertainment AMC, +0.30% stock he picked up at bargain-basement prices in mid-March paid off.
All hell broke loose this week when amateur online traders, many of them linked to the Reddit forum WallStreetBets, began pumping money into companies including GameStop, American Airlines, and Bed, Bath & Beyond in an effort to undercut large, entrenched hedge funds that were shorting the businesses.
The push upended the market, with GameStop’s shares fluctuating in value by hundreds of dollars in the span of hours, and hedge funds hemorrhaging billions.
It’s a free market, and “of course, there will be people that get hurt,” Farrar said, according to MarketWatch. In this context, however, that may be hedge funds shorting stock that now need to unwind those bets at a loss, he added.
“They have a different definition of being hurt,” he said. On the other hand, for “the little people down here” making a profit for now, “it’s a once in a lifetime opportunity,” Farrar added, MarketWatch reports.
He filled out that profit with trades in companies including Nokia NOK, +7.24%, BlackBerry BB, +3.76%, Express EXPR, -16.67% and yes, GameStop GME, -30.77%, all buzzy tickers on the forum he’d just learned about days earlier.
Although these stocks and others have been shorted by hedge funds, they are apparently getting bolstered by love and big wagers from social media sites like Reddit’s WallStreetBets.
Stock markets are rebounding from Wall Street’s worst week since October 2020, recouping losses caused in large part by a retail trading frenzy — but analysts warn of more turbulent days ahead.
The frenzy is a “train wreck happening in real-time,” according to WallStreetBets’ own founder.
Robinhood and other brokerage platforms, including TD Ameritrade and Interactive Brokers on Tuesday and Wednesday, restricted trading in shares of volatile stocks off the back of the unexpected surge in volatility.
That decision has hurt novice investors behind the spectacular Reddit rally in small stocks like Gamestop.
Barstool Sports boss Dave Portnoy last week blasted Robinhood's move to restrict GameStop trading, calling it "flat out criminal", after the broker caused its share prices to tank.
In an interview on FOX Business' "Varney and Co", Portnoy said Robinhood, a trading app, "basically stole money from their own clients”.
"They intentionally cratered a bunch of stocks …by not letting people buy it, only selling it," he said.
"To intentionally crater the stock at the expense all of your customers … well that's criminal in my mind. That's flat out criminal."
Portnoy said the coordination by people on social media sites like Reddit “definitely manipulated the stock price,” but also noted professional traders have “been doing the same thing for years.”
“You're telling me that analysts don't manipulate stock prices and drive them up and down to create buying opportunities and selling opportunities?” Portnoy asked host Stuart Varney.
“I'm not saying what the new guys are doing is great, but let's not pretend the old guys haven't made billions and have yachts and mansions for doing this same exact thing.”
Portnoy criticized Robinhood for changing the rules “overnight without telling anybody.”
A Robinhood spokesperson said the measures were designed to "protect investors and the markets".
However, the Robinhood user agreement, which is required for everyone to sign before trading on the app, states that the company may at any time and without prior notice “prohibit or restrict” a user’s ability to trade, NY Post reports.
On Thursday, Portnoy also took aim at hedge funder-turned-Mets’ owner Steve Cohen over the Wall Street tumult, accusing him of playing a part in the freeze.
Cohen’s Point72 Asset Management chipped in to help keep afloat the hedge fund run by his former protege, Gabe Plotkin, who reportedly lost some 30 percent of his portfolio in the chaos.
“PRISON TIME,” Portnoy said in a tweet that linked to Cohen, founder of Point72 Capital, as well as Citadel, a hedge fund run by billionaire Ken Griffin.
“I think you had strong hand in today's criminal events to save hedge funds at the cost of ordinary people. Do you unequivocally deny that?,” Portnoy said.
He cited as evidence Cohen’s recent efforts to bail out fellow hedge fund Melvin Capital Management from losses suffered by betting against stocks like GameStop, known as “shorting.”
Cohen’s Point72 Asset Management together with Griffin’s Citadel invested a combined $2.75 billion into Melvin, run by Cohen’s former protege Gabe Plotkin. Citadel also executes trade orders on behalf of Robinood.
Cohen defended himself saying, “What are you talking about? I unequivocally deny that accusation. I had zero to do with what happened today…chile out.”
Portnoy continued: “Then in your professional option why was trading halted on $amc $gme $nok $sndl $nakd ? I’d be very curious?”
“Good question,” Cohen shot back. “Those questions should be directed at Robin Hood etc. I’m a trader just like your like you are. When you find out give me a holler.”
“I do think the brokers should make a statement . Seems reasonable,” he added.
Portnoy commended Cohen for his response.
“At least you are speaking and trying to answer. That is appreciated," he wrote.
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