Vlad Tenev will testify at a congressional hearing on Thursday about January’s epic rally in stocks such as GameStop.
New York, United States – It was 8:30am (13:30 GMT) on a recent February Monday and Pablo Batista was beginning his morning ritual. He lit a fat cigar-shaped roll of sage and wafted it around his computer monitors. He said if he had cash on him he would have waved the smoke underneath the notes for luck, too.
“I don’t know how common it is for day traders to have rituals,” he told Al Jazeera. “You’ve got to have faith if you’re in the stock market. I don’t think all of it is just skill.”
Whatever it is, it seems to be working for him. Since losing his job as a line cook in Manhattan at the start of the pandemic, Batista has turned to the stock market. His family’s humble Bronx apartment is, in all senses, a long way from Wall Street, but he turned his initial $4,000 last year into what he says is “well over 65 grand”.
The 25-year-old was one of the thousands of retail investors who joined the GameStop buying frenzy at the end of January. Inspired by social media chatter, mainly within the now-infamous sub-Reddit group WallStreetBets, the struggling computer game seller’s share price soared from $19.95 on January 12 to open at $379 on January 28. It has since dropped back down to a more terrestrial $45.94 as at the close of trade on Wednesday.
But as GameStop’s shares soared, some saw it not only as money-making hype but also a desire to “squeeze” large Wall Street hedge funds that were looking to profit from an expected drop in GameStop’s share price. But whether you buy the David versus Goliath narrative or not, what the story did prove, was the power of social media to mobilise an army of traders – and a potentially disruptive force for Wall Street’s establishment.
Another technological trend driving the hype was the rise of new trading platforms, most notably Robinhood but also others like E*trade and Webull. Robinhood, for example, offers free trades, removing a barrier for many non-professional traders. But they found the buy orders so overwhelming that Robinhood and others briefly stopped people buying GameStop stock during the height of the trading.
Robinhood said it was simply because they did not have enough money to cover all the orders coming in and had no choice but to impose some trading limits. They reinstated trading the following day after a cash injection by investors. But retail traders like Batista smelled a rat.
“I think it discouraged a lot of new traders especially [and] left a sour taste in a lot of people’s mouths,” Batista said. “Because I feel like they did overstep their boundaries in terms of just what they were doing with people’s stocks.”
Those new traders were not alone; their anger has been heard by members of Congress. These include progressives such as New York Representative Alexandria Ocasio-Cortez, Massachusetts Senator Elizabeth Warren and even Texas Republican Senator Ted Cruz, who saw it as Wall Street protecting its own. The US House Financial Services Committee is due to interview some of the principal actors at a hearing into the GameStop saga on February 18.
So is regulation on the cards? Not according to Jeff Tomasulo, the CEO of Vespula Capital. Although he thinks there are some issues with the market, he backs Robinhood’s handling of the situation.
“I don’t think people really, truly understand that Robinhood could have went out of business,” he told Al Jazeera. “They didn’t have enough capital on their balance sheets to support the losses that they were taking. So they had to take drastic measures.”
One of the issues Tomasulo thinks should be looked at is the influx of social media investors. Not out of a desire to keep equities trading an exclusive club but rather because he thinks many do not know what they are getting themselves into.
“The biggest problem that I had with GameStop was that – especially when it was going up to $200, $300 – was we don’t teach any of these investors how to manage risk because there was, as the stock started to increase, more and more, you know, you’re creating more and more risk for yourself.”
For Batista, risk is something he seems to be very aware of. He said with a shrug that he lost $14,000 one day but has since managed to regain it. It certainly has not put him off day trading as a career.
“Throwing my money in the stock market probably wasn’t the smartest thing to do. But that’s why I think I’m kind of where I’m at right now. Because I took that risk.”