Stock market participants are re-evaluating how they trade after investors who gathered on social media platforms such as Reddit devastated deep-pocket hedge funds this week on Wall Street.
“Retailers will continue to be a force to be reckoned with, which is likely to permanently affect institutional investors ‘business models,” said Maneesh Deshpande, head of Barclays’ derivatives strategy. of the favored. stocks were a “wake-up call” for Wall Street.
These dangers were highlighted after hedge funds such as Melvin Capital were forced to give up their short positions to buy back shares, earning an overload of shares such as AMC EntertainmentAMC and Gamespot. GME
On the other hand, retail investors who were able to correctly identify stocks in which investors in short sales were vulnerable made significant profits.
A portfolio of short-circuited shares promoted on Reddit has grown 150% in the past two months, according to data from Wolfe Research.
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Some money managers are already struggling to anticipate retailers of the next targets on platforms like Reddit and Discord.
The Financial Times reported that hedge funds are looking at so-called alternative activity tracking data sets on Reddit to advance daily traders.
Indeed, Yin Luo, a quantum strategist and vice president of Wolfe Research, said his company came up with a tool that uses natural language processing to narrow down large volumes of text on subreddit forum wallstreetbets and to evaluate actions targeted by retailers.
He then looked at how many of these discussions on Reddit turned into the actual buying and selling of shares through Robinhood and other brokers that serve retailers.
Investors who use the tools could thus mitigate the risk associated with holding short positions and learn when a relay of retailers would arrive and break the company’s short-circuited shares, Yin said.
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