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The pundit class narrative about $GME as the ordinary Joes notching a win against the Wall Street titans is completely wrong on multiple levels. I’m going to bed but may tweet more on this tomorrow. https://twitter.com/danfostertype/status/1355345592751415298
David Battan does a nice job of explaining part of why @WSJOpinion why the $GME short squeeze has little do to do with the pundit David-Goliath narrative. Brokers must put up collateral to remain solvent, which gets threatened in highly volatile markets. https://www.wsj.com/articles/why-brokers-had-to-restrain-trading-in-gamestop-shares-11612201242
Furthermore, as Battan notes, brokers are mandated by regulators to block "suspicious activity" such as stock manipulation, even if that activity turns out to be innocent. They are held liable for not doing so.
Also: do you think hedge funds haven't heard of Reddit? Plenty of hedge funds promote their favored trades & investments on message boards. Before Reddit, it was Yahoo Finance. We may never know how much of the so-called "retail army" of $GME buyers was actually hedge funds.
Short squeezing is a longstanding and common trading strategy involving stocks that are widely viewed as overvalued. In $GME's case it was Reddit-driven. $TSLA experienced a non-Reddit short squeeze when it started to become consistently profitable.
Do you know who loves that short sellers are getting hammered this year? Billionaire & centimillionaire CEOs of overvalued companies. Because so much of their wealth is tied to the value of their company's shares, they get wealthier when nobody can short their overvalued stock.
Short selling allows stock valuations to remain more tethered to reality than they otherwise would be, smoothing out the bubble-bust cycle and helping to protect ordinary investors.
So, congrats to the Redditors (and hedge funds) who made money squeezing the shorts out of $GME. It was a smart trade. But the main beneficiaries were Fidelity, Blackrock, Vanguard, & Susquehanna. Woohoo! https://finance.yahoo.com/quote/GME/holders/
Oh—and I can't leave this topic without mentioning Robinhood, which claims to be "democratizing" finance thru $0 commissions. Robinhood's main revenue source is selling your data to...hedge funds who then front-run your trades. https://www.sec.gov/news/press-release/2020-321
If you want to learn more about front-running through high-frequency trading, read Michael Lewis' Flash Boys, which is an awesome deep dive into the topic. https://www.vanityfair.com/news/2015/03/michael-lewis-flash-boys-one-year-later
