Stock brokers, small investors and hedge funds are all bracing for tougher market regulations in the US, with officials expected to get together this week for assessing the fallout from a trading frenzy driven by social media that roiled silver prices and stocks. In the past two weeks, amateur traders went on a mass buying spree, which drove wild price gyrations in firms that big fund managers in the US had bet against, including cinema operator AMC Entertainment and videogame retailer GameStop. However, the darling stocks of small traders also stumbled because buying curbs were imposed by their brokers, with GameStop haven’t fallen by 80% from a peak in the previous week and AMC down by 60%.
In early deals, there was another decline of 28% in GameStop’s shares listed in Frankfurt, while there was a 9.6% decline in AMC. The posts on WallStreetBets, a forum on Reddit, had fueled the price of their US-listed stocks since mid-January and they had scaled as high as 800% for AMC and 2300% for GameStop. There was a brief surge in Silver on Monday as the metal was bought up by small traders and it steadied below its recent peak by nearly 10%. Experts said that this unwinding was expected, but also said that it wouldn’t be difficult for small traders to regroup and begin targeting fresh companies.
The only concern from a regulatory standpoint was that these traders could continue with this practice. The US Securities and Exchange Commission is responsible for regulating markets and its head will be meeting with the heads of the Commodity Futures Trading Commission and the Federal Reserve, along with Treasury Secretary Janet Yellen, most probably on Thursday. Yellen has asked for a discussion about the recent volatility and whether trade has been consistent with efficient and fair markets.
It remained unclear as to whether a meeting could lead to any action, but small traders are ready for a showdown and experts believe there would be some focus on the increasingly bigger role played non-bank firms in the financial markets like hedge funds. There was a post made on Reddit about the meeting and the user said that they were either going to try and stop the party or were going to pay the traders so they wouldn’t crash the market. Over the past year, there has been an explosion of participation from small traders in the stock markets as volatility, pandemic lockdowns and stimulus payments have resulted in a day-trading craze.
Due to this phenomenon, equity indexes have reached record highs from New York to Seoul and it has also given a boost to the prices of assets from stock market listings to cryptocurrencies. However, a whole new level was reached with the assault on short-sellers of GameStop, as it appeared that small traders were acting in concert, as they organized purchasing over Reddit. The price of Silver also received a boost on Monday because of posts, but that seemed to be short lived. It is apparent that retail investors still have a great deal of power in the markets.
You must be logged in to post a comment.