Type of site
|Founded||January 31, 2012|
|Country of origin||United States|
|Users||11.1 million (2021)|
r/wallstreetbets, also known as WallStreetBets or WSB, is a subreddit where participants discuss stock and option trading. It has become notable for its colorful and profane jargon, aggressive trading strategies, and for playing a major role in the GameStop short squeeze that caused losses for some US firms and short sellers in a few days in early 2021. The subreddit was founded in 2012 by Jaime Rogozinski who has since been removed as a moderator by Reddit administrators.
The subreddit, describing itself through the tagline "Like 4chan found a Bloomberg terminal", 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 fundamental investment practices and risk management techniques, so their activities are often considered gambling. The growing popularity of no-commission brokers and mobile online trading has potentially contributed to the growth of such trading trends. Members of the communities often see high-risk day trading as an opportunity to quickly improve their financial conditions and obtain additional income. Some of the members tend to use borrowed capital, like student loans, to bet on certain "meme stocks" that show popularity within the community.
The subreddit is also known for its profane and juvenile nature, with members often referring to themselves as "autists", "retards", "degenerates", and "apes". Users also frequently use slang such as "stonks" for stocks; "tendies" for gains or profits; "gay bears" for those who expect a stock to decline, for stock shorters, or as a general insult; "DD" for analysis of potential trades (from "due diligence"); "bagholder" for one whose position has severely dropped in value; "diamond hands" for holding stocks adamantly; and "paper hands" for selling at the first sign of loss.
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. The stock price increased more than 600 percent by January 26, and its high volatility caused trading to be halted multiple times. A series of posts by user u/DeepFuckingValue on the subreddit helped to generate interest in the stock. After the GameStop stock closed up 92.7 percent on Tuesday, January 26, business magnate Elon Musk tweeted out a link to the r/wallstreetbets subreddit.
On January 27, the official r/wallstreetbets Discord server was banned for "hateful and discriminatory content". Discord denied that the ban was related to the ongoing GameStop short squeeze. In an official statement posted to the r/wallstreetbets subreddit, moderators claimed that their efforts to automatically delete content that violated rules had been overwhelmed by the sheer influx of users, and criticized Discord for not providing the tools needed to take action to curtail hate speech on the server.[better source needed] Subsequently, the r/wallstreetbets Discord server has been brought back online, and staff from Discord have been reported assisting with moderation.
The subreddit was set to private by the moderators at around 7:00 p.m. EST on January 27, before being made public again around an hour later. Within one week of the GameStop short squeeze, the subreddit had gained over 2.4 million new subscribers, whereas previously, it took 9 years for the subreddit to reach 2.2 million. As of April 18, 2021, the subreddit had 9.8 million followers.
A few days following the short squeeze, some subreddit users started to pay for billboards depicting messages supporting r/wallstreetbets across the country, which included messages such as "buying" and "holding" GME shares, other messages consisted of "we like the stock" and joining the subreddit, labelling it as a "movement". Reddit also ran a five-second commercial during Super Bowl LV celebrating the subreddit, stating that "underdogs can accomplish just about anything when we come together around a common area."
Effect on the Robinhood trading platform
As of January 2021[update], many members of the subreddit used the popular mobile app Robinhood to trade stocks and options. Some members have been responsible for significant feature removals and bug fixes after identifying and publishing methods of exploit.
Box spread ban
Around January 2019, 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 two 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 1,832.99 percent. 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 the news website MarketWatch that the brokerage itself took the majority of the loss.
The "infinite leverage" glitch
Around November 2019, 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 leverage ratio of approximately 25:1. 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, a trade which led to a loss of $46,000, enormous relative to his initial deposit of only $2,000. He recorded the live reaction to his loss and uploaded it on his YouTube channel. Many other users tried to exploit the glitch, which they referred to as the "free money cheat code", before it was fixed, with one in particular claiming to have opened a $1,000,000 position from a $4,000 deposit.
Robinhood restricts trading
On January 28, 2021, during the GameStop short squeeze, Robinhood, TD Ameritrade, E-Trade, and Webull restricted the trade of heavily shorted stocks such as GameStop, AMC, BlackBerry Limited, Nokia, and Koss Corporation on their platforms. Many of the brokerage firms, including Robinhood, stated that the restrictions were the result of clearing houses raising the collateral required for executing trades on highly volatile stocks. Numerous members of the community have since expressed outrage directed towards those companies, particularly Robinhood. Efforts by r/wallstreetbets members and others across the Reddit platform plummeted Robinhood's star rating in both the iOS and Android app stores to one star by January 28, though intervention by Google increased its rating to 2.2 (as of January 30) by deleting one-star reviews. Class-action lawsuits were subsequently filed against Robinhood for the restrictions on trading.
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