Stock market participants are reassessing their trading after investors who congregated on social media platforms like Reddit swept deep-pocket hedge funds this week on Wall Street.
“Retailers are likely to continue to be a force to be reckoned with, which is likely to permanently affect institutional investors’ business models, ”said Maneesh Deshpande, head of Barclays Equity Derivatives Strategy, who adding the ongoing ongoing reduction of a few favored shares was a “wake-up call” for Wall Street.
These dangers became apparent after hedge funds like Melvin Capital were forced to step out of their short positions to recover shares, gaining in overheads for stocks like AMC EntertainmentAMC and Gamespot. GME
On the other hand, retail investors who have managed to correctly identify stocks in which short-term selling investors were vulnerable have obtained considerable returns.
According to data from Wolfe Research, a portfolio consisting of very small shares promoted on Reddit has increased by 150% in the last two months.
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Some money managers are already struggling to anticipate the upcoming goals of retailers on platforms like Reddit and Discord.
The Financial Times reported that hedge funds were looking for so-called alternative activity tracking datasets on Reddit to get ahead of the day’s traders.
In fact, Yin Luo, a strategist and vice president of Wolfe Research, said his company developed a tool that uses natural language processing to restrict large volumes of text to the walls of the subreddit forum and assess what actions go. be targets of retailers.
He then tracked the amount of these discussions on Reddit turned into real stock trading through Robinhood and other brokers that cater to retailers.
Investors using the tools could mitigate the risk associated with short positions and know when a run-down of retailers would arrive who would recover the company’s shares in bankruptcy, Yin said.
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