Gamestop GME Four lessons from the failed small traders rebellion

Gamestop (GME): Four lessons from the failed(?) small traders' rebellion

“Will you join in our crusade? Who will be strong and stand with me?

Beyond the barricade is there a world you long to see?

Then join in the fight that will give you the right to be free!

Do you hear the people sing? Singing a song of angry men?

It is the music of a people who will not be slaves again!

When the beating of your heart echoes the beating of the drums

There is a life about to start when tomorrow comes!”

- Les Miserables

The timeless novel and musical Les Miserables follows a group of young 19^th century Parisians who sparked an ill-fated revolution against the established French monarchy. The story climaxes with the idealistic but under-resourced rebels getting massacred by the full force of the French military in the “June Rebellion” of 1832. The story offers countless clear parallels to the current battle between communities of small traders like the “WallStreetBets” subreddit (r/WSB) and Wall Street hedge funds over stocks like Gamestop (GME) and AMC Entertainment (AMC).

Starting earlier this month, small-time traders coordinated their purchases to manufacture a “short squeeze” in these names, forcing large hedge funds to close out their short positions en masse and driving Gamestop up 1600% over the last two weeks alone. Underlying these purchases was a widespread desire to “punish the rich fund managers” and “take back the power from Wall Street bankers.”

Like the French military in Les Miserables, Wall Street struck back in force this morning, with many major brokerages restricting trading in these names, cutting off the flow of buying pressure that had put big hedge funds on the back foot. While communities like r/WSB are vowing to continue the fight, the -70% intraday drop in GME off yesterday’s peak suggests this rebellion against the proverbial “Wall Street Fat Cats” has petered out.

So what lessons can traders draw from the GME drama?

1) In the immortal words of William Goldman, “nobody knows nothing.” Absolutely no one predicted the magnitude and scale of the recent moves in these stocks, so be wary of anyone (including your humble(d) author) who proclaims to know what’s going to happen next. We truly live in unprecedented times.

2) Individual stocks can have explosive moves to the upside as well as the downside. Especially when a stock is seeing high levels of short interest, individual stocks can surge as quickly as they can collapse. Perhaps traders need to revisit the old trope that “stocks take the stairs on the way up and the elevator on the way down” – in our current environment, individual names have been more often taking a supercharged elevator in both directions!

3) Regulation is coming down the pipeline…eventually. Regulators including the SEC may well try to “make an example” out of the loudest voices coordinating the short squeezes, though prosecutions and new laws usually take longer than expected. As usual, high-ranking fund managers will almost certainly get no more than a proverbial “slap on the wrist” for similar actions.

4) This may not be the end. Despite the cynical tone this article takes toward small traders seeking to upset the status quo, it’s clear that there’s a broad frustration with distribution of power and wealth in the US and globally. Perhaps these disenfranchised citizens will pursue their trading agenda on decentralized alternatives or push for new laws through political channels to limit some of Wall Street’s greatest excesses.

After all, the failed rebellion in Les Miserables did set the groundwork for the ultimately successful French Revolution of 1848 – will we see something similar happen here?

Source: TradingView, GAIN Capital

Learn more about equity trading opportunities.

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.

ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.

City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.

The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.

The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.

The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.

This advertisement has not been reviewed by the Monetary Authority of Singapore.