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/r/WallStreetBets
Logo of the Subreddit
Type of site
Subreddit
Available inEnglish
FoundedJanuary 31, 2012; 12 years ago (2012-01-31)
Country of originUnited States
Founder(s)Jaime Rogozinski [1]
URLhttps://www.reddit.com/r/wallstreetbets/
RegistrationOptional
Users2,500,000 (January 2021)
Current statusActive

/r/wallstreetbets, also known as WallStreetBets or WSB, is a subreddit where participants discuss stock and option trading.

Overview

The subreddit, describing itself through the tagline "Like 4chan found a Bloomberg terminal",[2] is known for its aggressive trading strategies, which primarily revolve around highly speculative, leveraged options trading. Members of the subreddit are often young retail traders and investors who ignore investment practices and risk management techniques, so their activity is considered gambling. Growing popularity of no commission brokers and mobile online trading applications has potentially contributed to the growth of such trading trends. Community members often see high risk trading as an opportunity to drastically improve their financial conditions and obtain additional income. Some of the members tend to use borrowed capital, like student loans or margin, to bet on stocks that show popularity within the community.[1][3][4][5][6]

History

Jaime Rogozinski founded the subreddit, but was removed as moderator in April 2020.[1]

Effect on the Robinhood trading platform

Many members of the subreddit use the popular Robinhood mobile app to trade stocks and options. Some members have been responsible for significant feature removals and bug fixes after identifying and publishing methods of exploit, occasionally resulting in Robinhood incurring 5 to 7-figure financial losses to the brokerage.[citation needed]

Box spread ban

A user known as u/1R0NYMAN sold a box spread creating a $300,000 credit that should have netted him from $40,000-$50,000 over the course of 2 years. He described the trade as a way to make "risk free money", but he was unaware of the assignment risk. A few days later some of the options were exercised against him, causing a loss of over $60,000; calculating from the original amount in the user account, $5,000, the negative return of the trade was -1832.99%. As a result, Robinhood decided soon after that it would no longer allow the trading of box spreads. The user withdrew $10,000 from the account before the positions were closed; it is believed by Marketwatch that the brokerage itself took the majority of the loss.[7]

The "infinite leverage" glitch

A user known as u/ControlTheNarrative found a bug in Robinhood's trading platform and exploited it to leverage his original deposit of $2,000 all the way up to roughly $50,000, resulting in a ratio of approximately 25:1 leverage. He sold covered calls and, thanks to the bug, the credit that he received appeared as liquid money on his account. He used the money to buy put options on Apple stock, and the trade led to a loss of $46,000, enormous relative to his initial deposit of only $2,000.[8] He recorded the live reaction to his loss and uploaded it on his YouTube channel.[9] Many other users tried to exploit the so called "free money cheat code" bug before it was fixed, with one in particular claiming to have opened a $1,000,000 position from a $4000 deposit.[10]

GameStop short squeeze

Main article: GameStop short squeeze

On January 22, 2021, users of r/WallStreetBets initiated a short squeeze on GameStop, pushing their stock prices up significantly. This occurred shortly after a comment from Citron Research predicting the value of the stock would decrease.[11] The stock price increased more than 600% by January 26, and its high volatility caused trading to be halted multiple times.[12][13]

On January 24, 2021, a moderator of r/WallStreetBets wrote in a post stating "There is NO organized effort by those [of] us who moderate this community to promote, advise or recommend any stock. It is against our policy to do so and we feel it is crucial to allow members to be able to share their ideas amongst each other with autonomy."[14]

After the GameStop stock closed up 92.7% on Tuesday, January 26, 2021, business magnate Elon Musk tweeted out a link to the r/WallStreetBets subreddit.[15]

On January 27, 2021, r/WallStreetBets triggered a short squeeze on AMC, a company in a similar position to GameStop.[16]

References

  1. ^ a b c Davidson, Jake (October 25, 2018). "Meet the Bros Behind /r/WallStreetBets, Who Lose Hundreds of Thousands of Dollars in a Day—And Brag About It". Money. Retrieved March 16, 2020.
  2. ^ Kochkodin, Kochkodin (October 17, 2019). "A Guy on Reddit Turns $766 Into $107,758 on Two Options Trades". Bloomberg. Retrieved 23 January 2021.
  3. ^ Weisenthal, Joe; Alloway, Tracy (March 5, 2020). "How a Profane Subreddit Moved the Market (Podcast)". Odd Lots (Bloomberg). Retrieved March 16, 2020.
  4. ^ Kiberd, Roisin (December 11, 2017). "You Probably Shouldn't Bet Your Savings on Reddit's 'Wallstreetbets'". Vice. Retrieved March 16, 2020.
  5. ^ Kawa, Luke (February 26, 2020). "Reddit's Profane, Greedy Traders Are Shaking Up the Stock Market". Bloomberg. Retrieved March 25, 2020.
  6. ^ Anthony, KS (March 2, 2020). "Irrational Exuberance: An Interview With WallStreetBets Founder Jaime Rogozinski". SumZero. Retrieved March 25, 2020.
  7. ^ Langlois, Shawn. "Trader says he has 'no money at risk,' then promptly loses almost 2,000%". MarketWatch. Retrieved 2020-05-29.
  8. ^ GmbH, finanzen net. "Robinhood's 'infinite money' glitch shows the dangers of turning investing into a game, expert says | Markets Insider". markets.businessinsider.com. Retrieved 2020-05-29.
  9. ^ "wsb yolo". [dead link]
  10. ^ "Robinhood has a 'free money cheat' that allowed one user to grow $4,000 into $1 million through 'infinite leverage'". Business Insider. 2019.
  11. ^ Lyons, Kim (January 22, 2021). "GameStop stock halts trading after Reddit drama". The Verge. Retrieved January 25, 2021.
  12. ^ Li, Yun (26 January 2021). "GameStop jumps another 90% above $140, but short sellers aren't backing down". CNBC. Retrieved 27 January 2021.
  13. ^ Kilgore, Tomi. "GameStop's stock rockets again in volatile trading, while company has not released news or commented". MarketWatch. Retrieved 27 January 2021.
  14. ^ "How'd you guys manage to win so big it made these old guys drown in their tears?". Reddit. January 24, 2021. Retrieved January 25, 2021.
  15. ^ Bursztynsky, Jessica (2021-01-26). "GameStop jumps after hours as Elon Musk tweets out Reddit board that's hyping stock". CNBC. Retrieved 2021-01-27.
  16. ^ Warren, Tom (January 27, 2021). "Reddit's GameStop traders turn their attention to AMC stock". The Verge. Retrieved January 27, 2021.
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