There are many takes as to what will be the lasting effect (if any) of recent price action of particular stocks related to the wallstreetbets reddit thread. By now you have probably read articles or tweets talking about a rebellion from millennials brought on by wealth inequality, the generational wealth gap and/or the clash between the asset haves’/have nots. These are all reasonable opinions, and may in fact be a primary cause behind what is happening within our society, but that’s best left for another article. I want to talk about what may come about from this and I think its best start with the following sentence. The market has now fundamentally changed and is never going back to the way it was before.
The retail trader now occupies a considerable position within the market, which has never existed before and will only likely increase. Predicting the future is a difficult task, so it’s hard to predict exactly what will happen from this but I have a few hot takes/predictions of my own I’d like to share;
“The market has now fundamentally changed and is never going back to the way it was before.”
1. The emergence of retail trading pools or retail cartels (I much prefer the cartel title myself). When Bitcoin was first dreamt up and mining via your computer became a thing, no one really thought that mining pools would become a thing. (There were a few people who brought up the notion of competitive mining, but beyond that there is not much mention of it within the communications with Satoshi.) Could there be an equalivent of retail traders pooling their resources together to share profits or profit each other? The recent actions by many in the wallstreetbets thread show that this is a real possibility. After all a trade never works no matter how good it is unless people know about it. Is this one of those moments we may look back on and say that’s when the market realized that something had changed.
2. The retail trader can now have a serious impact on the market. Like I mentioned at the beginning of this article, the retail trade now occupies a significant share of the market. We have now seen what happens when enough retail traders follow the same idea, it can have a drastic impact. Currently there is a growing consumer backlash against the platforms primarily Robinhood that falicitilate the retail traders access to the markets. While this might ultimately damage Robinhood’s reputation, I don’t think it will stop its clients from using the platform. We will likely see the emergence of similar competitors to Robinhood or Robinhood taking a more active role in meeting the demands of its retail traders. Similar to what Coinbase has done with its ever growing number of tradeable assets in light of competition from the likes of Binance, Okex, etc. The point I am making is the retail trader will only have an ever growing list of options to access the market and thus his/her market share will only likely increase.
“The retail trader now occupies a significant share of the market. We have now seen what happens when enough retail traders follow the same idea, it can have a drastic impact.”
3. Shorting will become a sensitive or maligned action that few will take (if only for a short term). There seems to be this consensus currently that shorting a stock is evil or is somehow bad. Personally I believe there is nothing wrong with shorting. Some companies are probably overvalued and a trader who decided to put a short on a particular stock may just feel that indeed that stock is overvalued and the market will correct itself to a certain point. I also believe shorting is part of price discovery, it’s hard to determine what makes something overvalued and what isn’t, the ability to short something is part of the process of price discovery. There are also many fraudulent companies out there that probably deserve short positions on their stocks, for example a trading house called “Muddy Waters” has done a lot of good exposing frauds within the market. Nonetheless over the past week we have seen even well-established persons come out against shorting, I think this trend is likely to continue, perhaps not forever but at least for the immediate short term.
Conclusion: All of these may come to fruition or I could be dead wrong about them all, but I am confident that the market has now fundamentally changed and we are only just realizing this now. I’d also say out of all the predictions I had made here 1 is a serious risk or opportunity. Any takers willing to begin the first decentralized hedge fund or retail trading cartel?
This article was written by Paul from Tradesk FX
Contact me: https://cointr.ee/tradeskfx#links