I am sure most are familiar with the popular movie The Wolf of Wall Street. This movie is a very popular take on the stock market that presents the glitz, glamour, and wealth of being a stockbroker. But to truly understand the current events with the app Robinhood, we must be reminded it is much more than making money and living a life of fame.
On January 20, Robinhood Markets, Inc., an American financial service company that is very popular amongst a large number of stock market investors, restricted the allowance of investors to purchase certain stocks–the stocks being restricted? Namely, Gamestop which a Reddit community chat room named r/WallStreetBets boosted by 14,300%.
Here’s an overview of what went down. In late December Gamestop, a video game store, stock was down to a mere $19.38 a share.
The Reddit community (WallStreetBets) of now 3 million individuals rallied to rapidly purchase stocks around January 21. As a result, they boosted the selling price making them potentially a good deal of money.
“You combine the power of technology, which allows you through Reddit postings to magnify your individual impact, with some use of leverage and very targeted bets, they can have a significant influence, particularly on areas of vulnerability because of the short positions,” said investment strategist Jim Paulsen.
As a result of amateur investors, wealthy investors on Wall Street faced huge losses.
These wealthy investors had originally “bet” against Gamestop–short selling the stock. Short selling is essentially “borrowing” stock, selling it to another buyer at market price. When the stock loses momentum and the price falls, they buy it back for less money and keep the difference.
Short selling only works when the stock is very low. Obviously, Gamestop was key for short selling up until the 21, where the prices skyrocketed; at that time the original investor is forced to buy it back to try and cut their losses, but they have likely already lost a great deal of money.
This is perfectly legal, and there was peace and joy for a few brief moments, everyday Joe’s of America earned themselves a clever and substantial amount of money–until Robinhood made a very questionable decision.
First off, what is Robinhood? This is an app where beginner investors can invest for free, and without commission. In other words, they can play the stock market without any additional charges. Robinhood goes as far as claiming they are democratizing finance for all. They are designed to help out the little guy.
In fact, this company chose the name Robinhood as a nod to the famous tale of a legendary outlaw who stole from the greedy rich to give to the underserved poor. But the company Robinhood seems to be doing the opposite of the name in which they claim.
After lots of smaller investors bought Gamestop stocks, the rich (WallStreet) became very unhappy. They demanded they get their money back, which they lost fair and square.
This caused outrage from big time investors–whining about their lost capital; so, in response, Robinhood restricted users from buying more stock from Gamestop.
The company claims they are operating to help its investors in a “volatile market”–attempting to save face from the rich and the poor, but we’re not buying it.
It is also worth noting that Google has investments in Robinhood, and according to the Verge and Forbes; has been deleting any negative reviews against the financial company. Yet another example of two powerful monopolies working against the people they have vowed to serve.
To me, a more appropriate story Robinhood should be named after would be Goliath considering we the people are being treated similar to David instead of investors.
Politicians from both sides of the political aisle are in full agreement that what these major brokers are doing is not just wrong, but goes against the principles in which this nation was founded upon.
United States Representative Alexandria Ocasio-Cortez Tweeted: “We now need to know more about @RobinhoodApp’s decision to block retail investors from purchasing stock while hedge funds are freely able to trade the stock as they see fit.” She goes on to say she would support a hearing against this company violating fair trade laws.
Senator Ted Cruz responded in full agreement.
With many politicians and people pushing for legal action against Robinhood, there’s hope for a truly free stock market for everyone.
Stock market author Mathew R. Kratter once claimed “The stock market is the greatest opportunity machine ever created.”
How do we turn our short term passion about Robinhood into long-term change for the stock market?
If random Reddit users possess this much power, what does it say about the modern infrastructure in which our country’s stock market and economy are built on? This was a wake up call for both high class and lower class citizens. The upper class needs to make room for the lower class Americans; they’ve been running our money and stocks for too long. We should demand equal treatment and opportunity as the big investors. We need to hold the rich and big businesses accountable, and rise.
To me, it is more so a much needed reminder of the power we the people possess over these big businesses. It is our job to take back the flow of our hard earned money, and to halt the abuse these monopolized corporations have on us everyday Americans.