The past week in the stock market has been dominated by the trade battle between renowned hedge funds and retail traders. Most of the traders involved usually converge at the Reddit discussion group known as WallStreetBets.
The forum initially started with a small group of retailers who discuss highly risky equities in the stock market. But the group has grown to a massive 6.2 million members.
The interesting thing about this group is they are working together to make sure they win trade battles against the wealthier hedge funds.
Melvin Capital hedge fund becomes the latest victim
As the influence of the WBS group grows, the hedge funds are now paying more attention to prevent being bitten twice.
CNBC recently reported that hedge fund Melvin Capital lost over 50% in January due to the WSB activity.
The amount lost was too huge, which prompted Point72 and Citadel hedge funds to inject an emergency fund of $3 billion into the Melvin hedge fund.
Before the WSB squeeze, Melvin Capital has $12.5 billion AUM funds. However, the injected funds from the two companies took the AUM to $8 billion, which is still significantly lesser than what it had before January.
But the WSB investors are still pushing up the prices of some stocks, as traders are still going long on AMC, GameStop, and other companies the hedge funds have bet against.
That means the retail traders are investing in the opposite direction against hedge funds to make a big statement on their relevance in the stock market.
A month ago, AMC stock was trading at $2.06 while GME was trading at $17.26. However, there has been a massive leap for both stocks. At the time of writing, AMC and GME are trading at $14 and $326 respectively.
Retail investors making a huge statement
In the past, move price movements were caused by mergers and acquisitions or earning reports. However, the Reddit forum is now having a major say in the market, as any important tweet on the WallStreetBets can have a major impact on the price of a stock.
The retail traders did the same thing to video game app GameStop by bidding up its stock. This led to an unprecedented rise in the price of the stock by over 1,200% since January 11.
But last week’s r/WallStreetBets (WSB) saga is not yet over, and there are indications that last week’s problem could be the scratch of the surface.
The group may have realized the impact they could have on the market when they pile up together to pursue a single goal. Right now, they are giving hedge funds a run for their money, as the SEC continues to monitor the situation.
