Traditional investors were unnerved by the GameStop frenzy.
LightRocket via a photo by Pavlo Gonchar.
Almost a year ago, Wall Street traders couldn't believe what they were seeing. The prices of seemingly random stocks were going up fast.
It became apparent that retail traders were behind the huge run-ups. They were after hedge funds that had bet against the down-on- their-luck companies.
The stock of the video-game store skyrocketed in a matter of days after the storm. It was a disaster for investors who bet on a big fall in the stock. The hedge fund has not recovered since, and it was down 42% in the year 2021.
Retail traders can shift markets in a moment, but Wall Street is wary of their power. It's adapted to the new world and many pro traders are copying amateur investors' moves.
Marina Goche, CEO of data company Sentifi, told Insider that when the GameStop rally occurred, hedge funds lost $20 billion, and that it changed the light on among discretionary managers and professional investors.
The company has just signed a deal to provide "alternative data". The company keeps a record of hundreds of millions of messages on social media websites. It's looking for shifts in chatter that can help predict which assets will go up or down.
Many pro investors look to Sentifi's data to help manage the risk that their investments are about to fall foul of a retail trading frenzy. Hedge funds have been in touch.
The big players are on the field.
Major players aren't just looking to defend themselves. They see a chance to make money.
In-house traders and analysts have been watching retail trading activity at the bank. The investment bank tracks retail flows and volumes, analyzes options activity, and follows social-media sentiment to work out what the amateurs are up to.
"Investors should be paying attention to where that retail involvement has had some of the more outsized impacts," said the head of US equity strategy at UBS.
Retail doesn't have a big impact on traffic in tons of stocks. They tend to have an outsized influence. It does matter at the extremes.
The world's leading private bankers for the ultra-rich advise a next-gen client base they say is the most aggressive and confident they've seen.
Goche said that Sentifi's customers are interested in retail trading. She said that clients jumped in to get ahead of the moves when Sentifi picked up on the interest in silver on the internet.
Although there were murmurs throughout the year, retail traders are not likely to join another retailer.
Along with much of the rest of the market, retail investors were moving away from more volatile growth companies to value stocks towards the end of last year.
Wall Street shouldn't expect retail-trading to die down anytime soon, and more surprises could be on the way, according to Parker. It's difficult to predict, but it's important to track.
Business Insider has an original article.