The old expression, “The house always wins”, says that all gambling is set up so that the house will always make a profit through design. Either that or the house manipulates your outcome because, due to the volatility of your cards drawn, they have restricted your hand to hit only. To the ordinary person, the game would seem rigged.
r/wallstreetbets is a subreddit forum on Reddit with many day traders operating on various trade platforms, usually commission-free. In the past few weeks, it has risen to prominence as these traders have taken on hedge funds, the mainstream media, and their trading platform providers. So far, we know of their successes with stocks of GameStop, AMC and cryptocurrency DogeCoin among others. But where do the roots of this current internet phenomenon come from?
CNN has published articles relating to r/wallstreetbets on Reddit to the legacy of ‘Trumpism’, branding them right-wing while veteran traders, like Leon Cooperman have declared the actions of creditors and other forum users as “an attack on the wealthy.”
Robinhood, a popular trading platform among WSB users, halted all trading of certain stocks that were being pumped against short sellers. This drew huge attention to the legality of such actions and the perception that once Wall Street is losing at their own game, they change the rules. They have since restricted users’ ability to trade, in some cases only allowing users to sell the stock and not opening new options on the likes of Gamestop.
Such a perception might be labelled as pure populism, but there is public information to support such ideas as having been made on online forums. One investment group to suffer during the GameStop surge was Melvin Capital which closed its position on the shares and has received financial ‘lifelines’ from Citadel and Point72 Asset Management.
Robinhood, the app mostly used to pump the shorted stocks, puts its orders through Citadel to complete it. Robinhood works with just one partner, and this relationship was highlighted during the suspension of purchases. Citadel has played down their parentship with Robinhood as any pressures to halt trading on certain options would be illegal. It has been speculated that the actions taken by online traders to restrict users’ abilities could constitute as market manipulation. However, the outcome is uncertain as it will be hard to judge and will be the SEC's job to find out the specific factors behind such decisions.
Populism, as the Oxford dictionary defines it, is “a type of politics that claims to represent the opinions and wishes of ordinary people.” Populism in finance is nothing new; in 2011 there was a movement to hold the profiteering of Wall Street from the great recession accountable. This took the form of Occupy Wall Street. It drew many crowds to Wall Street, many of whom lost money and assets during the crash of 2008. The movement was quick to be dismissed as the normal social activism that comes and goes.
This is not entirely different to what some publications are now saying about r/wallstreetbets. Most people who have largely been ignored by those in political offices who campaigned on equity and the elites have little sympathy of corporations or hedge funds.
Many new traders who use trading platforms and cryptocurrency want to democratise finance and decentralise it. Scaring the established financial players is the ability and knowledge base of new traders who may indeed be beginning the fabled great wealth transfer of the Baby Boomer generation to the newer generations.
As with the evolving popularity of cryptocurrency and the backlash from the established financial institutions and those beholden to them, the current r/wallstreetbets successes are being met with the same criticisms from the giants in finance who see an intelligent collective that is playing the game correctly and frustrating the old guard of finance.
The recent events are part of an evolving populism movement against Wall Street with its roots in 2011 Occupy Wall Street movement. The goal of financial populism is muddled and hard to make it as it takes many forms, but decentralisation and power to the people are common mantras.
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