Retail investing had a watershed moment earlier this year when investors coordinated on the Reddit page r/WallStreetBets to pump the value of video game retailer GameStop’s shares. A meme stock was born, and the forum, which boasts close to 11 million members at the time of writing, has continued to rattle markets.
Incumbent market players have adapted to memes' influence on the stock market and now even try to predict the next stocks that will be targeted. Reddit’s own identity is now strongly associated with the meme stock craze; it raised $700 million in a funding round led by incumbent broker Fidelity in August.
Insider Intelligence spoke with the founder of r/WallStreetBets, Jaime Rogozinski, about the role the forum played in the meme stock mania and how he plans to integrate social media components into the retail investing experience with blockchain.
The following has been edited for brevity and clarity.
Insider Intelligence (II): What do you think is behind the meme stock mania?
Jaime Rogozinski (JR): Some investors rely on Robinhood’s commission-free model to trade and don't care about the ramifications from the payment for order flow model. They use complicated option strategies that don't usually work because commissions pretty much eat your entire profit margin when there’s really low risk. But Robinhood’s commission-free offering lets you do it.
Now with meme stocks, you have people who take $1,000 and turn it into $100,000 overnight. Famously, Keith Gill (aka, “Roaring Kitty”) did this by turning his $50,000 worth of GameStop shares into $50 million. These people don't care if someone is front running. They don't care if they get the trade a few cents cheaper. I've met people who have been more successful trading meme stocks than professional technical traders. Meme stock traders are a new segment of market participants and they can coexist with all the other types of investors, like high-frequency traders or fundamentalists like Warren Buffett.
I often get the question, "Why does it make sense that these guys are buying that stock based on a funny picture?" When the question really is, "Well, why does it make sense that a high-frequency computer buys a stock and then sells it 4.5 milliseconds later?" There's no more fundamental analysis from the computer than there is from the meme stock trader—or the technical one for that matter.
II: How are you planning to integrate social media components in trading?
JR: For as long as I can remember, people have tried to integrate social media or networking components to trading. And since the GameStop saga, we’ve seen a strong push for this.
We at r/WallStreetBets are taking steps toward that by launching what we call exchange-traded portfolios (ETPs):
In terms of revenues, this is a decentralized project. Right now, we generate revenues from selling the coins, and we're spending those revenues on programmers to build this thing out. But this is a project for the people. There are revenue streams that can be tapped into if we need to. But the core of this system is not “Jaime's going to profit.” This is an autonomous organization.
That said, this thing is growing to the point where we need to formalize our organization for legal purposes and to make the partnerships we need. So we’re actually going to create a separate business with which we can create other revenue streams, like merchandise.
II: Do you see other applications of blockchain technology in trading becoming more widely adopted?
JR: We're going to get the best of both worlds. Regular Wall Street's got a lot of things that are wonderful for it, but there's a lot of room for improvements:
I'll give you another example, which I love: automated leverage.
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