The n00b of Wall Street

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SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on February 4th, 2021.

Live streamed portfolio analysis. Derivatives as entertainment. The Wall Street Bets forum represents a new generation of stock traders who have borrowed their influences from the computer game world.

At the same time as the hedge funds was tearing their hair over extreme losses in Gamestop, a father of small children in Boston, wearing a headband, sat and drank champagne for seven hours – live on YouTube. Keith Gill, the man behind the Gamestop rally, celebrated his success with the dedicated fans who had followed him for a long time. Now, at least on paper, he was suddenly extremely wealthy.

It may not sound like the traditional stock trader. But this is not the first time that the stock market gets new eccentric personalities or, for that matter, reshapes itself.

Take only the last decades where the image of men in braces on the trading floor has long since disappeared and been replaced by high-frequency trading. We have seen lively discussions on social media about individual stocks for many years, and it is still big today. Now we see how the stock market is changing again – and that it borrows many of its influences from the gaming industry. The fact that it was Gamestop that everyone gathered around had mostly to do with short selling, but also contained components of pure nostalgia. People grew up with these American gaming stores, and that meant something to buyers.

Kenyatta Cheese, an expert in Internet culture, described the Gamestop boom as “a place for collaborative participation whether you invest or not”. He then explained how the incentives for each person vary greatly. Some are there to make money, some just for fun. Some are Keith Gills fans and most want to tag along to him.

You don’t need to trade stocks yourself to participate. For many, it is enough to watch when others do. Twitch – the streaming service for games that Amazon bought in 2014 for close to a billion dollars – has an average of 1.4 million viewers at any time of the day. Watching and discussing games is seen as an equal way to participate, just like with regular sports and the fan culture that is there. Now we also see it in stock trading.

The language used is familiar to those who know gaming and internet culture.

In Sweden, close to 400,000 people watched e-sports in 2017 daily, a figure that is said to be significantly higher today. The fact that we will soon have established Swedish stock streamers is therefore not far off.

The language used is also familiar to those who know their gaming and internet culture. Memes and emojis are more the rule than the exception. They talk about stocks as “stonks”, a deliberate misspelling of “stocks” that has been a meme for several years. “To the moon” followed by emoji rockets means that it is believed that the value of the share will skyrocket.

The jargon is playful, internal and closely related to the online culture in general. This means that many can move more seamlessly between games, social media and stock trading in a familiar way. Language and humor become the bridge between the different areas and open up a world that for many of them may have been a bit closed before.

As the stock market approaches the gaming world, risks follow for both the individual and the system. The fact that access to complex financial instruments was limited also meant that the risks for small traders were reduced. You seldom lost more money than you had, and usually not the whole amount either. When access to options and other derivatives increases, it has the opposite effect. And it can have fatal consequences. In June last year, a young man took his own life after misunderstanding his debt in the Robinhood app.

In addition, the share price itself could be a threshold. But Robinhood, which offers brokerage-free trading and also gives new customers a free share, now allows stock trading with so-called “fractional shares”, ie parts of a share. That means you can buy Tesla shares for $100, even if a single share costs around $850. That makes it easier to participate in the market, even with very small amounts. Lowering the barriers to entry for the stock market is a double-edged sword – both a democratization and an increased risk exposure.

The biggest factor that distinguishes what we now see from what we have been used to is its scale. When I wrote about the Wall Street bets forum on Reddit last week, it had 3.5 million members. Now the figure is 8.4 million. When millions of people can buy shares, on their mobile phones, with as little as $10 in investment – then shock waves are created in the financial system. Shock waves that get bigger by millions of participants who watch, discuss and trade on the stock exchange together. Many of them are now also forced to discover a truth that the most hardened stock traders have known for a long time: stocks do not just go up in value.

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