Jan 28, 2021

Gamestop Stock Explodes from Social Trading

Sergio Penguamo

amestop has been making major headlines recently due to the stock price surging after the r/Wallstreetbets and its community collectively started to create momentum behind the stock causing its value to skyrocket.

The traditional financial world, of course, has a major problem with this. To them, the socially manufactured momentum that affected the GME stock flies in the face of the calculated and methodical nature of sophisticated hedge funds. For the first time in popular culture, regular people have achieved what hedge funds have been doing for decades. 

The irony here is that they are upset about it, while all along they have been doing the very same thing. This whole scenario is playing out on the evening news and is a great time to become familiar with the term social trading. 

Robinhood Irony

Trading app Robinhood is at the heart of this unfolding drama who have now completely halted trading of GME violating their entire business model and catering, unsurprisingly, to the hedge fund crowd over the everyday retail investor. Instead of staying true to the character whose name the company holds, they take from the poor to give to rich.

Thankfully, there are people who aren't taking Robinhood's behaviour lying down and have launch a formal lawsuit against the company.

Introducing social trading

Social trading is when a group of people publicly share trading predictions and positions to collectively capitalize on whatever asset the community decides to trade. It could be thought of as a public hedge fund of sorts. The major difference between a traditional hedge fund and that of social trading is that people are posting their trading analysis and information publicly at a constant rate. Traditional hedge funds do not often log each and every trade, which obviously leads to insider trading and other unethical practices.

What traditional investors fail to come to terms with is that there are anonymous people out there who possess unlimited resources and knowledge about trading, via the internet, who can operate exactly as a hedge fund does, except do it publicly, allowing individuals out there who may not have the same expertise to piggy-back off of their knowledge and execute trades as well (within their own budget).

What social trading brings to the public is transparency like never seen before, which stands in radical contrast to hedge funds that remain tight-lipped about their trading practices. 

Risk and reward

One thing that people still need to be aware of is the risks involved with social trading. Just because something is public doesn’t mean it’s entirely safe or without risk. Trading assets can still be risky and establishing a risk strategy and budget is still vital. However, knowing you are not alone in a trade can and has opened the door to many people who would have never entered into the stock market in the first place. Social trading has brought with it a sense of inclusivity also. 

Value Surge

GME is just one of many examples where the value of a seemingly intangible asset has skyrocketed. Dogecoin is another example of how powerful social trading can become. Emerging out of the ether as little more than a joke this meme coin and the community that follows it did some amazing things. 

Starting in 2013, Dogecoin emerged as a more “fun” version of Bitcoin. Finding fun and interesting opportunities to be used the coin found fame in 2014 as it became a financial vehicle donated to the Jamaican bobsled team for their trip to the Sochi Winter Olympics.

One year later Dogecoin would even go on sponsoring a NASCAR and shortly thereafter reach a market cap of over $2 billion.

Just getting started

What happened with Gamestop isn’t new but it is the first example that has received the most press coverage. As resentment grows more and more with the traditional financial markets and corporations the emergence of decentralized finance is only just beginning. Projects are being created on a constant basis that aims to pave the way for DeFi and the technology it harnesses is improving exponentially.

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