In February, a quant fund called Cindicator Capital posted a job listing for someone with three years of trading experience — and at least 1,000 karma on r/WallStreetBets. “Important: NO higher education in economics or finance,” the listing said. Most of the time on the job would be spent on Reddit, Twitter, and Discord, finding out what retail traders are up to. Among the job duties listed: “opening six-figures OTM [out-of-the-money] options trades with the firm’s own capital” and “trying your best to prevent our risk management from having a heart attack.”
This listing actually made sense. After a few boring years where normal people mostly bought index funds, the pandemic sent a bunch of people who otherwise would have bet on sports into the welcoming arms of a new batch of mobile-first trading platforms because, well, there weren’t any sports to bet on. So retail traders bought into stocks — not with the idea of making a long-term investment, but rather with the idea of quick money. More sophisticated traders exploited market inefficiencies. Others just yoloed into the memes.
And then, in January, the retail traders decided to flex: GameStop was so heavily shorted that the traders figured that if they all jumped in, they would drive the price up. And they did: the price skyrocketed 1,900 percent to $347.51 at the close of trading on January 27th from a close of $17.25 on January 4th. The move was coordinated on r/WallStreetBets, a subreddit with millions of subscribers.
One retail investor making a trade isn’t significant. But the rallying cry of r/WallStreetBets is “Apes together strong!” None of GameStop’s fundamentals changed, but the stock surged anyhow as the retail traders cheered each other on. Much to the joy of the apes, hedge fund Melvin Capital lost 53 percent on its investments in January, largely due to the efforts of retail traders. Another hedge fund that took big losses on GameStop shut down completely.
Having demonstrated that they could move markets, the meme traders piled into other stocks: AMC, Bed Bath and Beyond, Nokia, Blackberry. AMC elected to yolo along with the retail investors, offering them free popcorn and announcing customers could buy sodas and other concessions with Bitcoin by the end of the year. (There was also a pantsless Zoom.) It has staved off bankruptcy, and its stock is up more than 1,600 percent this year, as of the close of market on October 29th.
And with the rise of retail investors has come a new class of investing influencers, of whom Elon Musk is the most influential. There’s more incentive than ever to try to become a finance influencer now that there’s a huge retail audience.
Welcome to internet finance. It’s only going to get weirder from here.
Before the pandemic, only one or two of the 30 students in Lana Swartz’s classes had any investing experience. After the pandemic, about 40 percent of her students said they’d done investing, says Swartz, an assistant professor of media studies at the University of Virginia. Many of them traded on platforms such as Robinhood, which offer free trades and fractional shares, making investing easier than before.
It’s tempting to blame the pandemic for the surge in retail trading, but the pandemic was more like gasoline. The fire had been burning for a while — since the 2008 financial crisis, in fact. And it had fuel before the pandemic, with mobile apps, free trades, out-of-the-money options, easily available information.
Cryptocurrency and increased interest in retail investing happened in parallel, says Jaime Rogozinski, founder of r/WallStreetBets. They share some of the same qualities: online communities, a focus on memes, and a general energy of “let’s make money and have fun.” Cryptocurrency and meme stocks are “two manifestations of the same ethos,” he says.
Take NFTs. They are media that allow users to program value in a way that previous media hasn’t, says Ali Yahya, a general partner at Andreessen Horowitz, who invests in cryptocurrency. “Now it’s possible to bet on memes, or bet on ideas, or bet on artistic trends that people might believe have a future.”
Originally, cryptocurrency was finance’s version of counterculture, and Bitcoin, especially, remains a finance-based method for hating government. Meme traders are just as contemptuous of the system, even though they’re participating. The crisis in 2008 was the result of big banks gambling with other people’s money. “The gambling approach they take is, ‘If you can’t beat ‘em, join ‘em,” Rogozinski says.
This influx of retail investors is the kind of thing that catches people’s attention, and a lot of new companies are trying to capitalize on them. For alternative investments — think real estate, art, racehorses, and sneakers (yes, really) — there’s Yieldstreet, Rares, MyRacehorse, and Artopolie. For retail investors who are interested in venture capital, there’s Miventure and Sweater Ventures. If you want to invest but aren’t experienced and only have a little money to play with, there’s Acorns.
This is maybe the funniest part of financial nihilism. (Or maybe the most nihilistic part — it’s hard to tell.) Most of the companies I just listed are backed by big-name venture capital firms, as was Robinhood. You can distrust, even hate, Wall Street as much as you want, but that just creates a new market for it to exploit. If a venture firm — or an investment bank, or anyone else — can make money off of investors’ hatred, they’d be silly not to. After all, among the big winners in the GameStock debacle was an investment firm that correctly called the top based on an Elon Musk tweet.
“There’s nothing wrong with Wall Street making money too,” Rogozinski says. “The apes who are gambling and yoloing — they can coexist with high-frequency trading and Warren Buffet.”
Who are these retail investors? Conveniently, Robinhood went public this year — thus giving us a picture of its users. About 50 percent of all new retail trading accounts opened in the US from 2016 to 2021 were on Robinhood, the company’s prospectus said. Almost three-quarters of the assets under Robinhood’s custody come from people aged 18 to 40. Robinhood’s amazing dodge on gender ratio — they’re welcoming an “increasing proportion of women to our platform,” lmao — suggests that most of these users are male.
A Robinhood user who’s 38 would have lived through the savings and loan crisis throughout their childhood, the Enron and Worldcom frauds in high school, and — most significantly — the 2008 financial crisis as they entered the workforce. As home prices and the stock market recovered, Millennials were shut out because they didn’t have enough money to buy the assets that led the recovery. (An Australian millionaire blamed this on avocado toast.) And while Silicon Valley boomed in the 2010s, that boom was primarily in the private markets that most investors can’t access.
“My parents bought their house in 1980, and it’s now worth $1.2 million,” says Rogozinski. “But my rent is more expensive than their mortgage.”
What about a younger Robinhood user? A 23-year-old member of Gen Z may not remember all the scandals the older Millennial does, but their outlook is, if anything, grimmer. More than 80 percent of Gen Z survey participants said money was a major stress, and about a third of them identified personal debt as their main source of anxiety, according to a 2018 survey from the American Psychological Association. Half of the Gen Z respondents 18 and older in a Pew survey reported someone in their household either lost their job or took a pay cut during the coronavirus pandemic.
Part of what drove the r/WallStreetBets raid on GameStop was fury at financial institutions, specifically hedge funds. The GameStop trades didn’t start that way. But when it was clear hedge funds were losing money, the vicious joy some investors felt clearly spoke to a pent-up sense of anger from 2008, Rogozinski says.
And when Robinhood halted trading because it fell short of the collateral requirements for the Depository Trust & Clearing Corp, part of the financial plumbing that most retail investors don’t see, users were furious. A conspiracy theory arose that major financial players had deliberately shut them down because they’d become too powerful. (Never mind that the GameStop rally made some ultra-rich people richer.)
The conspiracy theory is a useful window into the minds of these investors. They believe Wall Street has stacked the deck against them. They’re angry, and they feel powerful when they can take a hedge fund down a peg. And they’ve also discovered there’s power in numbers. While Keith “Roaring Kitty” Gill was the face of these traders, he wasn’t exactly an average investor; he’s a chartered financial analyst who was employed by MassMutual as the director of financial wellness education. And he’s famous for his YouTube videos and financial analysis that boosted his bet on GameStop.
Gill isn’t going to be the last person employed in a finance-industry job who yolos his way into being an influencer.
Arguably the biggest influencer in finance is none other than Elon Musk, who, for years, has been rallying the faithful to Tesla stock through his Twitter account (with the occasional go-private whoopsie) along the way. Musk has endorsed both the GameStonk fever dream and Dogecoin, as well as — somewhat more conditionally — Bitcoin. In fact, Bitcoin’s price frequently responds to Musk’s tweets.
There’s an entire world of personalities beyond Musk and Gill, though. r/WallStreetBets is somewhat more narrowly focused than it was before the GameStonk event, but even it has competition. (In his newsletter, Ranjan Roy makes a compelling argument that Reddit’s UX design tweaks contributed to retail investor behavior changes.) Any platform you name has investing influencers, such as Mrs. Dow Jones on Instagram, YouTube, and Twitter. Younger investors can tune into TikTok for trading tips, or follow The Stock Guy on Twitch.
The chaotic behavior — buying a stock for fun or because someone who you know through social media has endorsed it — is not quite what economic theories predict; most are built on maximizing utility and happiness, says Joshua White, an assistant professor of finance and former financial economist for the SEC. “A big component of investing for retail is excitement and the joy of taking risks,” he says. People might trade to feel like they’re part of a movement or because they really like a specific financial influencer. “With social media platforms and the ability to reach people in an instant, I don’t see that waning.”
It’s not just that. Stocks are easy to meme, says Chad Byers of Susa Ventures, an early investor in Robinhood. “It’s the one part of money you talk about with your friends at the dinner table: stocks,” Byers says. People aren’t exactly running around bragging about their high-yield savings accounts. “Stocks are this inherently conversational, viral topic among the financial world.”
That cuts both ways: because stocks are viral, there’s incentive to become a stock influencer, get lots of views, and make more money than bankers. It also means that brokerage startups get easy word-of-mouth marketing and don’t have to pay as much to acquire users, Byers says.
In some ways, the fandomization of finance was inevitable; fandom has consumed the political sphere already. The Bitcoin community has, for years, used memes and specialized vocabulary to reassure themselves and each other about their investments; the lingo binds the community together as insiders, says Swartz, who is also the author of New Money: How Payment Became Social Media.
This isn’t limited to Bitcoin or to Reddit; my Discord direct messages are full of cryptocurrency spam, particularly pump-and-dump schemes. The spam messages I get are probably blasted to everyone in the cryptocurrency, finance, and NFT Discords I hang out in. They seem to be an attempt to harness existing fan communities into get-rich-quick schemes.
Perhaps naturally, every fandom acquires haters. For the Tesla true believers, the mirror community is $TSLAQ. Some — perhaps many — of these people are actively shorting Tesla. They even have their own research drones. Some of them just like fighting online. But the thing that holds them together is their sense of community; they are generous with each other.
Similarly, just as Bitcoin has its true believers, the Buttcoin community spends its time making fun of them. Some cryptocurrency haters have embraced the label of being “bitter no-coiners” and spend their free time heckling the true believers.
Fandom runs on emotion, so finance fandom means that the affective aspects of trading are front and center. Members of r/WallStreetBets don’t claim to be geniuses with spreadsheets ruthlessly identifying and executing against market inefficiencies.
“Finance always felt like it had to hide what it was doing to distinguish itself from gambling,” Swartz says. “A lot of those illusions have been stripped away. Retail investors aren’t saying they’re masters of the universe. They’re saying they’re apes.”
They’re also saying they’re “degenerates;” their rallying cry is “we like the stock.” Retail investors are embracing the “animal spirits” that lurk at the heart of finance, Swartz says. Emotions and instincts have always guided economic behavior; with retail investors forming communities, those emotions are likely to play an outsized role in the economy.
These groups have offline predecessors in investment clubs, which really took off in the 1990s. In those clubs, retail investors pooled their money because they were too small to attract much broker attention; collectively, however, they were essentially a small mutual fund. Sometimes these groups were coworkers or friends — people who already had social ties.
These clubs came into vogue as pensions became a thing of the past, and the risk of managing money for retirement fell on individuals. Club members had a daunting task: predicting the future. What stocks would go up? Many of them relied on “social identity and social interaction to create mental maps of the stock market,” according to Pop Finance, a sociological study by Brooke Harrington of some investment clubs active during the late 1990s stock bubble. For instance, a group declined to invest in Harley Davidson, which was hot at the time, because they didn’t want their kids to ride motorcycles.
For a more recent example, there’s Donald Trump’s SPAC: Trump Media & Technology Group, which plans to merge with Digital World Acquisition Company. The day after it was announced, shares of DWAC shot up to close at $94.20, almost 100 times the price the day before. The deal hasn’t closed — and may not close! SPAC deals don’t always go through! — but for Trump fans who want to demonstrate their support, well, this is an easy way to do it. It success even spawned an NFT drop of Trump signing someone’s breast.
Fandoms aside, retail investors today are even more likely to be overwhelmed by their options. But social media also provides identity-based guidance for investing, whether you’re a Bitcoin Maxi or a r/WallStreetBets degenerate. Participating in an online community can even influence your identity.
For instance, r/WallStreetBets also provides identities for investors who lose their money — as many retail traders do. The practice of posting “loss porn” transforms the shame of being a bad investor to the pride of being a member of the community who’s truly yoloing; and after all, this doesn’t change their sense that the market is stacked against them. Reframing these losses lets these investors see themselves as something other than suckers who are being fleeced for everything they’re worth.
This may also explain why people participate in pump-and-dump cryptocurrency schemes, even though there’s a high likelihood they’ll be bagholders. The identity of being an active investor, especially in the cryptocurrency space, is more important than returns. After all, in the US at least, having a stock portfolio is a status indicator — and in some circles online, playing in cryptocurrency establishes one’s internet bona fides. So far, so similar to the 1990s.
But one major difference between today’s influx of retail investors and those who were involved in investing clubs is the availability of information, free trades, and new platforms. Those platform dynamics may have an outsized influence on finance if retail trading stays strong.
Take, for instance, push-notification arbitrage. Here’s how it works: You know that Robinhood will send a push notification if, let’s say, GameStop goes up 5 percent. So you get in at 4.9 percent, either triggering the push alert yourself or waiting for another trade to do so. When it goes out, more people will buy, but not you — you’ll sell.
This works because platforms such as Robinhood default to sending push alerts on price. They do this because they make money every time you trade; Robinhood and other retail investing platforms aren’t neutral. These apps — and others like them — are the main way that retail investors interact with the stock market.
The push notifications are a major, obvious way platform dynamics manifest for the newer, mobile-first apps. Webull is needy, overusing push notifications; Coinbase alerts are lightly deranged and don’t seem to follow a pattern. In terms of notifications, Sofi is the least invasive of the bunch. Stash Financial has gone in the most heavily on gamification — the last two push notifications I have from them are about bonus stocks, a “stock party,” and a $1,000 Costco gift card giveaway. Stash certainly isn’t the only app offering prizes to increase engagement, either — Webull has a prize wheel like that on The Price is Right.
The other trend across these apps is the simplicity of use — the experience is relatively frictionless. I barely realized I was agreeing to open a retirement account on Stash until it happened! They also create the illusion of near-instantaneous trading.
That’s not all. Making trading easier for ordinary people also means it’s easier to take on stupid amounts of risk. “It is so scary what you can actually get ahold of through Robinhood without realizing it,” says Rogozinski. Between leverage and options, it’s possible to wind up making massive trades with relatively small amounts of money.
In a world where the brokers are mobile-first applications, rather than people, platform effects have outsized influence. And the norms of startup behavior — as Robinhood users can attest — mean that the focus is often on building scale at the cost of stability. Whoopsie, says Robinhood, you can’t trade.
Which means that apps can become so powerful that they influence markets. Coinbase, a trading platform by and for the wildly passionate cryptocurrency community, has reached such a scale that it can now move prices on cryptocurrencies simply by announcing it will list them, Byers says.
Then there are the regular platform dynamics — there’s plenty of terrible financial advice out there on TikTok, for instance. And while it’s possible that people who get that bad financial advice could sue, the question is, you know, with what money?
Still, with the memable stocks as the tip of the spear, fintech companies have been consolidating their services. “You’re going to go back to re-bundling as these dominant single-use products become multi-use and then specifically start to get banking charters and become essentially full-service digital banks,” Byers says. They can point their large customer bases to their new products easily.
Some of this has already happened: Paypal and its subsidiary Venmo allow cryptocurrency trading, though they were originally built for sending payments. Robinhood now has a cash management tool — which is similar to a savings account without the virtue of actually being one.
Several people I spoke to pointed to blockchain-based finance and games as the major thing that’s coming next. The decentralized finance world has gotten increasingly sophisticated, and NFTs are just the beginning. I am somewhat more skeptical, partly because cryptocurrency is notorious for scams and can be hard for beginners. But even DeFi follows the trend: the alternative to banks is now, apparently, trying to figure out banking.
It’s possible that retail investors will lose interest — some analysts have told The Financial Times that’s already happening, too. Charles Schwab, for instance, reported an 8 percent drop in retail trades between the second and third quarters of 2021. Robinhood itself, the meme brokerage, missed third quarter revenue estimates, as fewer people were trading cryptocurrencies. It also projected less trading in the fourth quarter than in the first half of this year. This makes sense; the pandemic-related enthusiasm couldn’t last forever. Still, not everyone who got involved with retail trading is likely to drop out.
Which makes me wonder what the finance influencers mean for regular banking, though. During the pandemic, there were several funny trades that occurred because people got too excited about Elon Musk’s tweets. Signal Advance, a small component manufacturer with just one full-time employee, shot up in value after Musk tweeted “Use Signal” in reference to the encrypted messaging app. Later, when Musk tweeted about using Clubhouse, a voice chat app that’s still a private company, investors mistakenly bought shares in Clubhouse Media Group, an unrelated Chinese company. When Facebook changed its name to Meta, well, material-science company Meta Materials’ stock shot up.
Institutional and retail investors both make these mistakes, which are more likely when an unscheduled event — such as new company guidance or a Musk tweet — occurs. Perhaps next year, a fund will post a job ad, asking for an analyst who monitors influencers after someone makes a wild gamble based on an up-and-coming TikTok influencer, and rocket rocket heart eyes the fund to the moooooooon. WAGMI, the hedge funds will say.
Correction Nov. 2, 9:30PM ET: Corrects spelling of “Andreessen Horowitz.”