Wall Street wants to prevent stocks from being traded like cryptocurrencies.
An active Reddit-based trading community is causing more stocks to behave like characteristically volatile cryptocurrencies amid an ongoing campaign of monstrous short squeezes. In response, brokers and other financial service providers are threatening to block trading access to limit the risk.
The Wall Street Bets (WSB) trading community on Reddit, described as “how 4chan found a Bloomberg terminal”, wreaked havoc in traditional markets after dropping GameStop (GME) by nearly 900% in five days had pumped around $ 380 on Wednesday morning. And the chaos is spreading.
Other sharply shortened stocks like BlackBerry (BB) and AMC Entertainment (AMC) have seen triple-digit percentage gains over the past few weeks as WSB traders targeted these companies. Even Eastman Kodak (KODK) rose nearly 50% on Thursday, briefly trading near $ 14 after closing below $ 9.50 on Wednesday.
Other companies like Tootise Roll (TR) and National Beverage Corp (FIZZ) are also among the hedge fund’s most shortened stocks, according to CNBC, making them potential WSB candidates going forward.
The long list of worries and problems caused by this erratic market activity includes causing severe financial losses to hedge funds like Melvin Capital, which had a large short position at GameStop. The fund eventually capitulated and closed its position on Tuesday after taking a “big loss” on CNBC reported.
The Reddit trading community cheered. But trading services react strictly to the chaos.
After TD Ameritrade tweeted about “unprecedented volumes” that “may cause limited access,” TD Ameritrade only restricted customer trading for GameStop, AMC and other securities “to reduce the risk to our business and our customers.”
Adena Friedman, CEO of Nasdaq, told CNBC on Thursday that her company will actively monitor social media chatter and stop trading stocks if the content matches “unusual activity in stocks”.
Cryptocurrency investors are taking advantage of the craziness to highlight a potentially universal trade and financial services use case that cannot be restricted or subject to similar raids. Mike Novogratz, CEO of Galaxy Digital (GLXY), said on Twitter that the WSB episodes were “a huge confirmation” of decentralized funding. However, whether these fraudulent traders are interested in blockchain-based products remains to be seen.
Steve Sosnick, Interactive Brokers Chief Strategist called Short sellers generally a “curious bunch” who benefit from “courage and careful research”. But as the WSB saga continues, he warned “many” could quickly feel “flooded”.
“Nobody can take it […] An investor tsunami aimed at short sellers, ”said Sosnick.