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Stock market players are reassessing the way they trade after investors rallied on social media platforms like Reddit devastating deep-pocket hedge funds in dramatic fashion this week on Wall Street.
“Retail traders are likely to continue to be a force to be reckoned with, which is likely to permanently affect the business models of institutional investors,” said Maneesh Deshpande, head of equity derivatives strategy at Barclays, adding the squeeze short-term continues to some of the favorites. stocks was a “wake-up call” for Wall Street.
These dangers were highlighted after hedge funds like Melvin Capital were forced to leave their short positions to buy back stocks, thus increasing the earnings of stocks like AMC EntertainmentAMC and Gamespot. GME
On the other hand, retail investors who managed to correctly identify stocks to which short investors were vulnerable reaped sizable returns.
According to data from Wolfe Research, a portfolio of heavily sold stocks on Reddit has grown 150% in the past two months.
See: GameStop frenzy puts clearinghouses in the spotlight as investors assess systemic risk fears
Some fund managers are already scrambling to anticipate the next targets of retail traders on platforms such as Reddit and Discord.
The Financial Times reported that hedge funds were looking to track so-called alternative data sets tracking activity on Reddit to get ahead of day traders.
Indeed, Yin Luo, quantitative strategist and vice president of Wolfe Research, said his company has developed a tool using natural language processing to parse large volumes of text on the wallstreetbets sub-reddit forum and evaluate actions targeted by retail traders.
He then followed to what extent those discussions on Reddit have turned into buying and selling stocks through Robinhood and other brokers aimed at retail traders.
Investors using the tools could thereby mitigate the risk associated with holding short positions and learn when a rush of retail traders would come in and break the company’s shares short, Yin said.
Lily: Robinhood Day Traders Squeeze Hedge Funds – Here’s Why It May Continue
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