The world’s financial markets represent a huge and highly lucrative entity, with the global market cap soaring to a record high of $96 trillion in 2020.
There’s no doubt that the growth of this and similar markets has coincided with the emergence of the digital age, which has empowered practices such as social trading and given rise to a host of seminal Internet trade groups.
But how have Internet trade groups combined to disrupt the world’s stock markets, and what does this tell us about the future for asset classes across the globe?
How Redditors Have Become Stock Market Disruptors
The influence of Internet trade groups came into sharp focus recently, when the so-called “WallStreetBets” community of online day traders propelled shares in video game retailer GameStop up by a staggering 2,220% at the beginning of 2021.
The group, which includes more than 4.5 million members and is based on the social media platform Reddit, is renowned in financial market circles for creating a significant buzz around certain assets and manipulating prices as a result.
To achieve this, the group creates a strong and compelling narrative, before providing detailed analysis and insight into the market and creating enough smoke and mirrors to keep interested parties hooked.
In this case, what may have started out as a joke grew into a sudden and sustained rush to market, seeing GameStop’s share price surge in an incredibly short period of time.
AMC Entertainment Holdings Inc’s (AMC’s) price climbed during the same period, creating the type of market manipulation that can make or break traders in the digital age.
How Did the Market React to These Price Shifts?
Interestingly, this isn’t the first time that a Reddit sub community has heavily influenced price movements, with the Hertz car rental brand benefiting from increased demand and a significant price hike just months after filing for bankruptcy.
After bankruptcy was filed for in May 2020 and share prices plummeted (following the impact of the coronavirus), June saw a huge and unexpected burst as the brand name began the source of intense speculation online.
Given this, it should come as no surprise that regulators sought to take action following the dramatic rise of GameStop and AMC, as they moved to restrict trading on these stocks and minimise any further disruption to the marketplace.
According to Jeffrey Halley, the senior analyst at Oanda, online brokers took direct action to quell interest, with the resulting price plunge wiping out $11 billion of associated value in a 24-hour period.
Of course, we must remember that this loss should not be considered in real monetary terms, as the additional value was a direct result of price manipulation and the machinations of Internet trading groups.
However, there’s no doubt that such entities will continue to influence price points in the near-term, raising the likelihood of further and more permanent regulatory measures being introduced over time.