Reddit vs. Wall Street: A modern day David vs. Goliath


Photo courtesy of Apple Stocks

Fueled by a trading frenzy, GME reached a 52-week high of $483 last month

What do Ted Cruz, Alexandria Ocasio-Cortez, Elon Musk and Stephen Colbert have in common? If you guessed not much, you would be correct. However, these four, along with thousands of others, have taken to Twitter to denounce the day trading app Robinhood.

Let me tell you an underdog story filled with money, market manipulation and some nostalgia. Let’s start at the beginning, with the Reddit forum r/WallStreetBets.

Reddit is an online forum with millions of users. It has subreddits, which are created to discuss specific topics, such as r/WallStreetBets where people share advice and stories about buying and selling stock. Few people on r/WallStreetBets are experts in stock trading. So how did Redditors cost some Wall Street veterans hundreds of millions of dollars? Introducing: Robinhood.

Robinhood is an app where people can buy and sell stock. What makes Robinhood different from other stock trading services is that it is more user- friendly. The app explains the stock market, making it easy for those with little experience (like members of r/ WallStreetBets) to buy and sell stocks.

The final part of this story is short sellers. When buying stock, most people will buy the stock, wait for the price to go up, then sell, collecting profit on the price increase. However, short selling is the opposite. Business Insider describes the complicated process as “selling borrowed stocks in anticipation of a decline in price.”

Short sellers are despised by those who frequent r/WallStreetBets. They are seen as market manipulators and profiteers. So now we have fairly inexperienced stock market betters, a user-friendly trading app, and the corporate enemy. All that is needed is a stock to buy: enter GameStop.

GameStop, the video game retail store, was struggling. Six months ago, its stock price was $4.16. There were many short sellers looking to pounce. However, a mix of childhood nostalgia and a general hatred of short sellers helped fuel a r/WallStreetBets uprising. Last month, day traders used Robinhood to buy a ton of GME, AMC and BlackBerry stock.

This move made little business sense, as the future of these three companies did not seem promising. How- ever, this influx in trading helped skyrocket the companies’ stock prices. At one point, GME reached $483, which is a 11510.6 percent increase from six months ago. This not only made some Redditors a lot of money, but it also induced a short squeeze, which is when short bettors lose a lot of money because the stock that they bet on to go down actually goes up. David had taken down the mighty Goliath with the power of the mob and a little bit of video game nostalgia.

However, every Cinderella story must come to an end. On Jan. 28, Robinhood decided to go against everything it stands for, and restricted trade on GameStop, AMC, BlackBerry and other stocks. People were livid. Ocasio-Cortez tweeted “this is unacceptable” and called for Robinhood to be investigated. Robinhood has since lifted the restriction, but the damage was done. Most stock prices have dropped to pre-Reddit frenzy levels. GME, however, is still far above its book value (the price at which a company determines its stock should sell). When the market closed on Feb. 5, GME was at $63.77.

Although our brave Redditors may not have completely defeated Goliath, the past month has demonstrated that even in times of hyper-partisanship, America and opposing politicians can still effectively be brought together. All that is needed is a good underdog story.