r/wallstreetbets

r/wallstreetbets, also known as WallStreetBets or WSB, is a subreddit where participants discuss stock and option trading. It has become notable for its colorful and profane jargon, aggressive trading strategies, harassment, and for playing a major role in the GameStop short squeeze that caused losses for some US firms and short sellers in a few days in early 2021.[2] The subreddit was founded in 2012 by Jaime Rogozinski,[3] who has since been removed as a moderator by Reddit administrators.[4]

r/wallstreetbets
WallStreetBets.png
Icon and banner
Type of site
Subreddit
Available inEnglish
FoundedJanuary 31, 2012; 10 years ago (2012-01-31)
Country of originUnited States
Founder(s)Jaime Rogozinski
URLreddit.com/r/WallStreetBets Edit this at Wikidata
RegistrationOptional
Users12.2 million members[1]
Current statusActive

OverviewEdit

The subreddit, describing itself through the tagline "Like 4chan found a Bloomberg terminal",[5] is known for its aggressive trading strategies, which primarily revolve around highly speculative, leveraged options trading. Members of the subreddit are often young retail traders and investors who ignore fundamental investment practices and risk management techniques, so their activities are often considered gambling. The growing popularity of no-commission brokers and mobile online trading has potentially contributed to the growth of such trading trends. Members of the communities often see high-risk day trading as an opportunity to quickly improve their financial conditions and obtain additional income. Some of the members tend to use borrowed capital, like student loans, to bet on certain "meme stocks" that show popularity within the community.[3][6][7][8][9]

The subreddit is also known for its profane and juvenile nature, with members often referring to themselves as "autists", "retards", "degenerates", and "apes".[8][10] Users also frequently use slang such as "stonks" for stocks; "tendies" for gains or profits; "gay bears" for those who expect a stock to decline, for stock shorters, or as a general insult; "DD" (from "due diligence") for analysis of potential trades; "bagholder" for one whose position has severely dropped in value; "diamond hands" for holding stocks adamantly; and "paper hands" for selling at the first sign of loss.[11][12][13]

GameStop short squeezeEdit

Closing price and trade volume of GameStop Corp. (GME) from January 4, 2021, to February 5, 2021[14]

On January 22, 2021, users of r/wallstreetbets initiated a short squeeze on GameStop, pushing their stock prices up significantly. This occurred shortly after a comment from Citron Research predicting the value of the stock would decrease.[15] The stock price increased more than 600 percent by January 26, and its high volatility caused trading to be halted multiple times.[16][17] A series of posts by user u/DeepFuckingValue on the subreddit helped to generate interest in the stock.[18] After the GameStop stock closed up 92.7 percent on Tuesday, January 26, business magnate Elon Musk tweeted out a link to the r/wallstreetbets subreddit.[19]

On January 27, r/wallstreetbets users also triggered a short squeeze on AMC, another company with heavily shorted stock, similar to GameStop.[20]

On January 27, the official r/wallstreetbets Discord server was banned for "hateful and discriminatory content". Discord denied that the ban was related to the ongoing GameStop short squeeze.[21] In an official statement posted to the r/wallstreetbets subreddit, moderators claimed that their efforts to automatically delete content that violated rules had been overwhelmed by the sheer influx of users, and criticized Discord for not providing the tools needed to take action to curtail hate speech on the server.[22][better source needed] Subsequently, the r/wallstreetbets Discord server has been brought back online, and staff from Discord have been reported assisting with moderation.[23]

The subreddit was set to private by the moderators at around 7:00 p.m. EST on January 27, before being made public again around an hour later.[24] Within one week of the GameStop short squeeze, the subreddit had gained over 2.4 million new subscribers, while it had taken nine years to gain the first 2 million subscribers.[25] As of April 18, 2021, the subreddit had 9.8 million followers.

A few days following the short squeeze, some subreddit users started to pay for billboards depicting messages supporting r/wallstreetbets across the country, which included messages such as "buying" and "holding" GME shares, other messages consisted of "we like the stock" and joining the subreddit, labelling it as a "movement".[26] Reddit also ran a five-second commercial during Super Bowl LV celebrating the subreddit, stating that "underdogs can accomplish just about anything when we come together around a common area."[27]

Effect on the Robinhood trading platformEdit

As of January 2021, many members of the subreddit used the popular mobile app Robinhood to trade stocks and options. Some members have been responsible for significant feature removals and bug fixes after identifying and publishing methods of exploit.[28]

Box spread banEdit

Around January 2019, a user known as u/1R0NYMAN sold a box spread creating a $300,000 credit that should have netted him from $40,000–50,000 over the course of two years. He described the trade as a way to make "risk-free money", but he was unaware of the assignment risk. A few days later, some of the options were exercised against him, causing a loss of over $60,000; calculating from the original amount in the user account, $5,000, the negative return of the trade was 1,832.99 percent. As a result, Robinhood decided soon after that it would no longer allow the trading of box spreads. The user withdrew $10,000 from the account before the positions were closed; it is believed by the news website MarketWatch that the brokerage itself took the majority of the loss.[29]

The "infinite leverage" glitchEdit

Around November 2019, a user known as u/ControlTheNarrative found a bug in Robinhood's trading platform and exploited it to leverage his original deposit of $2,000 all the way up to roughly $50,000, resulting in a leverage ratio of approximately 25:1. He sold covered calls and, thanks to the bug, the credit that he received appeared as liquid money on his account. He used the money to buy put options on Apple stock, a trade which led to a loss of $46,000, enormous relative to his initial deposit of only $2,000.[30] He recorded the live reaction to his loss and uploaded it on his YouTube channel.[31] Many other users tried to exploit the glitch, which they referred to as the "free money cheat code", before it was fixed, with one in particular claiming to have opened a $1,000,000 position from a $4,000 deposit.[32]

Robinhood restricts tradingEdit

On January 28, 2021, during the GameStop short squeeze, Robinhood, TD Ameritrade, E-Trade, and Webull restricted the trade of heavily shorted stocks such as GameStop, AMC, BlackBerry Limited, Nokia, and Koss Corporation on their platforms.[33] Many of the brokerage firms, including Robinhood, stated that the restrictions were the result of clearing houses raising the collateral required for executing trades on highly volatile stocks.[34] Numerous members of the community have since expressed outrage directed towards those companies, particularly Robinhood. Efforts by r/wallstreetbets members and others across the Reddit platform plummeted Robinhood's star rating in both the iOS and Android app stores to one star by January 28, though intervention by Google increased its rating to 2.2 (as of January 30[35]) by deleting one-star reviews.[36] Class-action lawsuits were subsequently filed against Robinhood for the restrictions on trading.[37]

See alsoEdit

ReferencesEdit

  1. ^ "wallstreetbets". Reddit. Retrieved May 23, 2021.
  2. ^ Greifeld, Katherine; Lipschultz, Bailey (January 25, 2021). "GameStop Short-Sellers Reload Bets After $6 Billion Loss". Bloomberg. Retrieved May 5, 2021.
  3. ^ a b Davidson, Jake (October 25, 2018). "Meet the Bros Behind /r/WallStreetBets, Who Lose Hundreds of Thousands of Dollars in a Day—And Brag About It". Money. Archived from the original on January 29, 2021. Retrieved March 16, 2020.
  4. ^ "Reddit banned a group of WallStreetBets moderators". Insider.com. February 5, 2021. Retrieved March 20, 2021.
  5. ^ Kochkodin, Kochkodin (October 17, 2019). "A Guy on Reddit Turns $766 Into $107,758 on Two Options Trades". Bloomberg. Archived from the original on January 29, 2021. Retrieved January 23, 2021.
  6. ^ Weisenthal, Joe; Alloway, Tracy (March 5, 2020). "How a Profane Subreddit Moved the Market (Podcast)". Odd Lots (Bloomberg). Archived from the original on March 16, 2020. Retrieved March 16, 2020.
  7. ^ Kiberd, Roisin (December 11, 2017). "You Probably Shouldn't Bet Your Savings on Reddit's 'Wallstreetbets'". Vice. Archived from the original on June 20, 2019. Retrieved March 16, 2020.
  8. ^ a b Kawa, Luke (February 26, 2020). "Reddit's Profane, Greedy Traders Are Shaking Up the Stock Market". Bloomberg. Archived from the original on March 19, 2020. Retrieved March 25, 2020.
  9. ^ Anthony, KS (March 2, 2020). "Irrational Exuberance: An Interview With WallStreetBets Founder Jaime Rogozinski". SumZero. Archived from the original on March 24, 2020. Retrieved March 25, 2020.
  10. ^ Caldwell, Christopher (February 4, 2021). "Are GameStop's 'Degenerates' Just Getting Started?". The New York Times. Retrieved February 8, 2021.
  11. ^ Sarlin, Jon (January 29, 2021). "Inside the Reddit army that's crushing Wall Street". CNN. Archived from the original on January 29, 2021. Retrieved January 29, 2021.
  12. ^ "Factbox: Stonks to the moon: Deciphering Reddit's WallStreetBets lingo". Reuters. January 29, 2021. Retrieved January 29, 2021.
  13. ^ "Ultimate Guide to WallStreetBets Terms and Lingo". SWFI. January 30, 2021. Archived from the original on January 31, 2021. Retrieved February 2, 2021.
  14. ^ Data from Yahoo! Finance
  15. ^ Lyons, Kim (January 22, 2021). "GameStop stock halts trading after Reddit drama". The Verge. Archived from the original on January 24, 2021. Retrieved January 25, 2021.
  16. ^ Li, Yun (January 26, 2021). "GameStop jumps another 90% above $140, but short sellers aren't backing down". CNBC. Archived from the original on January 26, 2021. Retrieved January 27, 2021.
  17. ^ Kilgore, Tomi. "GameStop's stock rockets again in volatile trading, while company has not released news or commented". MarketWatch. Archived from the original on January 26, 2021. Retrieved January 27, 2021.
  18. ^ Prentice, Chris; Schroeder, Pete (January 28, 2021). "Famed GameStop Bull 'Roaring Kitty' Is a Massachusetts Financial Advisor". Reuters. Archived from the original on February 1, 2021. Retrieved February 4, 2021.
  19. ^ Bursztynsky, Jessica (January 26, 2021). "GameStop jumps after hours as Elon Musk tweets out Reddit board that's hyping stock". CNBC. Archived from the original on January 27, 2021. Retrieved January 27, 2021.
  20. ^ Warren, Tom (January 27, 2021). "Reddit's GameStop traders turn their attention to AMC stock". The Verge. Archived from the original on January 27, 2021. Retrieved January 27, 2021.
  21. ^ Morse, Jack (January 27, 2021). "Discord bans WallStreetBets server for 'hateful and discriminatory content'". Mashable. Archived from the original on January 28, 2021. Retrieved January 27, 2021.
  22. ^ "Where do we go from here and who is going to step up to help us?". Reddit. January 28, 2021. Archived from the original on January 28, 2021. Retrieved January 28, 2020.
  23. ^ Warren, Tom (January 28, 2021). "Discord is no longer banning r/WallStreetBets — it's helping them". The Verge. Archived from the original on January 29, 2021. Retrieved January 29, 2021.
  24. ^ Peters, Jay (January 27, 2021). "r/WallStreetBets has been made private'". The Verge. Archived from the original on January 27, 2021. Retrieved January 27, 2021.
  25. ^ Murdock, Jason (January 28, 2021). "WallStreetBets Subreddit Gains 2 Million Members in a Day Amid Wall Street Siege". Newsweek. Archived from the original on January 28, 2021. Retrieved January 28, 2021.
  26. ^ Louise, Brynley (February 5, 2021). "Wall Street Bets IRL: See the Billboards they're buying for laughs". Film Daily. Retrieved April 27, 2021.
  27. ^ "Reddit celebrated WallStreetBets success with a five-second Super Bowl ad". Engadget. Retrieved February 8, 2021.
  28. ^ GmbH, finanzen net. "The jig is up: Robinhood says it's closed the 'infinite leverage' loophole that allowed users to build positions worth millions". Business Insider. Retrieved January 27, 2021.
  29. ^ Langlois, Shawn. "Trader says he has 'no money at risk,' then promptly loses almost 2,000%". MarketWatch. Archived from the original on March 13, 2020. Retrieved May 29, 2020.
  30. ^ GmbH, finanzen net. "Robinhood's 'infinite money' glitch shows the dangers of turning investing into a game, expert says | Markets Insider". markets.businessinsider.com. Archived from the original on June 9, 2020. Retrieved May 29, 2020.
  31. ^ "wsb yolo". Archived from the original on November 6, 2019. Retrieved May 29, 2020.
  32. ^ "Robinhood has a 'free money cheat' that allowed one user to grow $4,000 into $1 million through 'infinite leverage'". Business Insider. 2019. Archived from the original on November 11, 2020. Retrieved December 8, 2020.
  33. ^ "Robinhood, TD Ameritrade restrict trading of GameStop, AMC stock". CNET. January 28, 2021. Archived from the original on January 28, 2021. Retrieved January 28, 2021.
  34. ^ Massa, Annie; et al. (January 29, 2021). "Robinhood Fallout Sweeps Market After $1 Billion Lifeline". Bloomberg News. Archived from the original on January 29, 2021. Retrieved January 29, 2021.
  35. ^ "Robinhood - Investment & Trading, Commission-free - Apps on Google Play". Archived from the original on January 30, 2021. Retrieved January 30, 2021.
  36. ^ Jay Peters (January 28, 2021). "Google salvaged Robinhood's one-star rating by deleting nearly 100,000 negative reviews". The Verge. Archived from the original on January 29, 2021. Retrieved January 30, 2021.
  37. ^ Zilbermints, Regina (January 28, 2021). "Class-action lawsuit filed against Robinhood for restricting trading". TheHill. Archived from the original on January 28, 2021. Retrieved January 31, 2021.