State of emergency on the US financial market: low trading fees, agreements in online forums and YouTube tutorials triggered a stock market boom in the pandemic, with a new generation of small investors catapulting shares in troubled companies into unimagined heights. The papers of the computer game dealer Gamestop, which had been exposed to violent price capers for days, went out of trading on Wednesday with an increase of around 135 percent. The papers of the world’s largest cinema chain AMC, which was recently traded as a bankruptcy candidate, rose by more than 300 percent.
Worried about economic difficulties, Gamestop’s shares were still at a record low for $ 2.57 in 2020. But since mid-January, the papers have only known one direction – up. Most recently, the shares were trading at a maximum price of just under $ 150.
Arrangements by retail investors
The decisive factor behind the price rally on the US stock market is a new phenomenon on the US stock market, in which masses of small investors meet up in forums, for example on the chat platform Reddit, in the style of flash mobs to buy certain stocks. Thanks to a price war between online brokers that was triggered not least by the securities trading app Robinhood, which has lowered fees massively, stocks trading in the USA has developed into a kind of popular sport, especially for many younger people during the Corona crisis.
In addition, riskier transactions, for example with options in which, for example, only fractions of the value of a share certificate are traded, are now much more accessible to the general public and no longer only to financial professionals. For example, Gamestop is one of the stocks that were recently heavily discussed on the Reddit online platform. Another hobby of the community is to use concerted actions to push professional investors out of the market who have speculated on falling prices.
At Gamestop there was a real trial of strength with hedge funds, in which the small investors were able to prevail, at least for the time being. However, the phenomenon is not entirely new. Social trading platforms have been around for years, on which users exchange ideas in order to develop purchase ideas together.
US Securities and Exchange Commission observes the goings-on
The price turbulence caused great excitement in the financial world in the middle of the week, the Wall Street Journal even wrote of a “war”that broke out between hedge funds and amateur traders. Many online brokers had technical problems given the busy market. Calls for a trade freeze were made to calm the situation. The SEC announced that it was keeping a close eye on the situation and announced an investigation. A White House spokeswoman said at the press briefing that a team from the Treasury Department was also monitoring the situation.
Finally, the one on the short message service Twitter should also be very present Tesla boss Elon Musk with a tweet about Gamestop and a link to Reddit users fueled the recent rally. Meanwhile, analysts warn that the massive price increase has nothing to do with reality. Expert Jens Rabe thinks that the soaring of the Gamestop shares is damaging the reputation of the stock exchange, since the process is perceived as “gambling”. He even calls for regulatory action to be taken, as stocks of small companies could be misused as pawns.