Here’s what happened when investors using apps like Robinhood began wagering on a pool of unremarkable stocks.
We’ve all been following the story about GameStop, AMC and the Stock Market’s Wild Ride This Week. The story has a nice David and Goliath side where amateur traders stick it to the big Wall Street bullies, but it is also about the random power of internet-enabled crowds.
Here are some aspects of the story:
- Robinhood Financial is an app/service that lets you trade without paying commissions. It became popular among the amateur traders even after they had to limit trades. Another industry being disrupted by a Silicon Valley startup.
Robinhood’s distress follows a familiar narrative: A Silicon Valley company that promised to disrupt an industry ends up being overcome by the forces it unleashed and has to be reined in by regulators, or in this case, the industry it promised to change.
- One story being told is that this is another case of internet trolls gaming a system for the “lulz” (and for money.) A few persistent Reddit users promoted GameStop and other stocks until they were able to provoke a stampede. Frictionless trading courtesy of Robinhood (and other such services) made it easy for the crowd of like-minded amateurs who organized around the Reddit WallStreetBets to game the system.
- This may also be an example of the gamification of trading. Mind, trading has always been a form of gambling, but now it is accessible to all. Robinhood has created an interface to trading that makes it another form of play and, by making trades free, they become spectacle or a game. Like Facebook or other platforms that give you free services, the money is being made elsewhere and we, the users pay in other ways.
I can’t help feeling that this irrational exuberance will end badly, both for many of the new traders who have jumped in with the crowd, and for those that will be collateral damage when the bubble bursts.