Aint lookin' so dumb now, eh quimosabe? 
"Dumb money" is what Wall Street sleazebag traders refer to the mom & pop Joe and Jane Smith out in Wichita, Kansas, trading stocks on personal accounts. Well as you likely have heard, the "dumb money" coordinated their buying through Reddit forums and trading apps to give Wall Street hedge funds the big middle finger by putting the kabash on their trading strategies resulting in losses in the billions. Talk about revolution of the proletarian LOL.
How does this work? It's still the core "buy low, sell high" but done in reverse. Hedge funds differ from traditional investment firms in that they look for alternative investments - for example, they don't buy IBM, they "short" failing companies. By "shorting," you are selling a stock with the promise to buy it later. So if you think a company is going to fail, you sell the stock at $10 with the promise to buy it at a later date. The company tanks, the stock goes to $5, you buy at that price and pocket a $5 profit. Given the backwards nature of this trade, you required to maintain a stash of cash with the brokerage firm to cover any losses if it goes the other way, say $20, now you are in the hole $10. This is what is called a "margin" and if the stock goes up, you get a "margin call" meaning, yo, you gonna lose money so close the transaction. So when GameStop started to skyrocket in price, all these trader's got margin calls because while a stock can go DOWN to $0 (limited profit), it can go UP to infinity (unlimited LOSS). As these margin calls are triggered and the trader's are forced to close their position (buy back at the stock at MUCH higher than they sold). Note that not any Joe Schmoe can "short sell" like this. The margins that are put up are substantial amounts of money because, as I said, the loss can be unlimited. Def not for the faint of heart.
I spent a decade on Wall Street but not as these sleazy traders. In fact, we called them "barbarians." (They called us "golden boys" but that's ok lol.) I advised on transactions. Namely mergers and acquisitions. And with that said, I can tell you what is happening here *IS* market manipulation no if's, and's, or but's. In the same sense that non-unionized workers are not meant to collude (e.g., hey guys, let's all call in sick until they give us a raise!) under labor law, retail investors are not meant to coordinate their buying and selling. There is a reason they call these *arms length* transactions ... you are not in bed with each other to put it another way.
Now with *that* said ... I find it absolutely RICH (pun intended) that these "barbarians" (lol) are now calling fowl when they know FULL WELL the endemic level of collusion that goes on on the street.
Proof?
Look up *ANY* big merger or acquisition. Look up the target company stock price. Pull up a historical chart for the date of the acquisition. Now look closely at the trading activity days, sometimes even weeks, before the announce date of the acquisition. *THAT* is insider trading.
So as much as I do agree what the "dumb money" is doing is in fact illegal, it's something the "barbarians" have been doing since the beginning!!
"Dumb money" is what Wall Street sleazebag traders refer to the mom & pop Joe and Jane Smith out in Wichita, Kansas, trading stocks on personal accounts. Well as you likely have heard, the "dumb money" coordinated their buying through Reddit forums and trading apps to give Wall Street hedge funds the big middle finger by putting the kabash on their trading strategies resulting in losses in the billions. Talk about revolution of the proletarian LOL.
How does this work? It's still the core "buy low, sell high" but done in reverse. Hedge funds differ from traditional investment firms in that they look for alternative investments - for example, they don't buy IBM, they "short" failing companies. By "shorting," you are selling a stock with the promise to buy it later. So if you think a company is going to fail, you sell the stock at $10 with the promise to buy it at a later date. The company tanks, the stock goes to $5, you buy at that price and pocket a $5 profit. Given the backwards nature of this trade, you required to maintain a stash of cash with the brokerage firm to cover any losses if it goes the other way, say $20, now you are in the hole $10. This is what is called a "margin" and if the stock goes up, you get a "margin call" meaning, yo, you gonna lose money so close the transaction. So when GameStop started to skyrocket in price, all these trader's got margin calls because while a stock can go DOWN to $0 (limited profit), it can go UP to infinity (unlimited LOSS). As these margin calls are triggered and the trader's are forced to close their position (buy back at the stock at MUCH higher than they sold). Note that not any Joe Schmoe can "short sell" like this. The margins that are put up are substantial amounts of money because, as I said, the loss can be unlimited. Def not for the faint of heart.
I spent a decade on Wall Street but not as these sleazy traders. In fact, we called them "barbarians." (They called us "golden boys" but that's ok lol.) I advised on transactions. Namely mergers and acquisitions. And with that said, I can tell you what is happening here *IS* market manipulation no if's, and's, or but's. In the same sense that non-unionized workers are not meant to collude (e.g., hey guys, let's all call in sick until they give us a raise!) under labor law, retail investors are not meant to coordinate their buying and selling. There is a reason they call these *arms length* transactions ... you are not in bed with each other to put it another way.
Now with *that* said ... I find it absolutely RICH (pun intended) that these "barbarians" (lol) are now calling fowl when they know FULL WELL the endemic level of collusion that goes on on the street.
Proof?
Look up *ANY* big merger or acquisition. Look up the target company stock price. Pull up a historical chart for the date of the acquisition. Now look closely at the trading activity days, sometimes even weeks, before the announce date of the acquisition. *THAT* is insider trading.
So as much as I do agree what the "dumb money" is doing is in fact illegal, it's something the "barbarians" have been doing since the beginning!!
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