Individual Investors Turn Wall Street on Its Head

thebalancemoney.com:

The stock market last week took a raucous rollercoaster ride, with prices swinging high and low in the blink of an eye, and volatility soaring. The culprits? Retail investors.

Individual investors, as they are also known, often have less experience and play with smaller amounts of money, generally for themselves. Recent chatter by retail investors in online forums like Reddit's «wallstreetbets» turned to avenging the little guy against big money hedge funds. They urged each other to buy up shares of GameStop, AMC Entertainment, and Bed Bath & Beyond, among others, which some big hedge funds had bet against. The strategy is known as short-selling—investors make money by wagering that stock prices will tumble.

GameStop soared and hedge funds were forced to buy stock and cut their losses, or sell shares in other companies to shore up funding, prompting volatility not seen since before the 2020 election. As of 12 noon Monday, GameStop was down about 24% from Friday’s close, and it seems the story's far from over.

Individual investors have become more active in the past year, boosted by zero-commission trading from popular trading apps like Robinhood and a pandemic that's kept a lot of people at home and bored. Retail investor trading now accounts for about 20% of stock activity and on peak days as much as 25%, compared to around 10% in 2019, Joseph Mecane, head of execution services at market-making firm Citadel Securities, said in aninterview with Bloomberg back in July.

At the same time, game playing has thrived during the pandemic. But with many stores and malls closed, video game retailer GameStop has seen net sales shrivel—they dropped 30% in the third quarter of 2020 from one year earlier. Retail investors