We had one hell of a week no matter if you are a daytrader or long-term investor. Who wins in the battle of the little man vs. the big man?
If you missed the news this week, we had a fair share of market manipulation. This was on both sides. The question now is what happens going forward. Do we enter a market of uncertainty or are we going to see some things normalize a little?
No matter what you are trading, you will most likely get faced with something over the next six months in terms of regulation or ease of making a trade. There are two sides to the story, but who is right and who isn’t. There will be so many questions asked and who knows if we will get a straight answer or not.
Let us look at some stocks in question.
Gamestop – GME
Does this stock deserve a valuation and price level of where it is at right now? Probably not. This is a company that has been struggling for years and of course, during the first year of the pandemic, it has really struggled.
Does the stock deserve to be overly shorted by super-rich Hedge funds? Yes and No. They have a right to put on a short in the stock, but at the level, we are dealing with here, it is not appropriate. Levels of over 140% short on the float should not be legal. In fact, that is what the little man figured out and decided to make those in question pay.
The goliath of the group decided to create an open forum mass sort squeeze causing the stock to soar over 800%. This massive short squeeze, then brought new people to the market and pushed it even higher. Meanwhile, the shorties or hedge funds, couldn’t cover their positions fast enough. With all that leverage they are struck with a margin call that was bigger than their accounts could handle. They took on way too much margin shorting GME and now they are going to pay the price.
At the end of the day, no one is going to really win. Hedge funds will get blown up, the little guy will have some gains, but the repercussions of overall market action will change. Things have been crazy over the past year and we think most people don’t want to see that end.
Does this mean we are going to see so many changes? This is a question that will be asked every day until some resolution is found. Will Robinhood make everyone look at the markets differently. Can you still trade at IQ Option, yes you can. From commissions to price action something will long different. All brokers will have to make some interesting decisions.
Algo trading could get really angry. It could bring in all kinds of high-frequency trading moves that could hurt all of the participants. Sometimes it is best to sit on the sidelines and this can be one of those times. Keep your risk management in check the whole time and don’t force anything that may not have a chance.
The future of trading is up in the air in some aspects. At the same time, this shouldn’t stop you from trying. We’ll know soon enough how things progress from all of this.