WallStreetBets – How The Retail Day Traders Took On Wall Street
Share trading restrictions by top brokers have been criticised after an army of amateur Reddit investors caused a surge in GameStop shares over the last two weeks in January 2021. As a result, the WallStreetBets trading community has been hit with both excitement and outrage in the space of just a few days. Read on to find out what really happened.
What Is GameStop?
GameStop Corp. is an American high street chain that sells video games, electronics and gaming merchandise, with over 5,500 retail stores throughout the United States.
Until recently, there was nothing particularly notable about the chain, especially as the market for physical gaming products has been in decline since 2016. Furthermore, with many people switching to online shopping due to the Coronavirus pandemic, GameStop became one of many companies to suffer.
Nonetheless, the GameStop Corp. stock, traded as NYSE: GME, was attractive to large hedge funds who were shorting its shares to make millions in profit. In fact, GameStop was described by big investors as one of the most shorted stocks on Wall Street.
Shorting, or short selling, is where investment firms who suspect a company is failing, will make a profit by betting that the company’s share price will drop. For example, a hedge fund might borrow shares in a company and then sell them for $20 each, with a promise to buy them back later when the price drops to $10.
The Short Squeeze
In a bizarre turn of events over the past two weeks, amateur investors on popular internet forum, Reddit, started to play Wall Street at its own game. The ‘wallstreetbets’ forum, with over four million members, exchanged tips and started buying shares in GameStop.
The demand drove the share price up to over 1,700% by the close of trading in New York on Wednesday, rallying to over $480 per share from under $20 previously.
This meant that investors who originally hoped the value would drop had to quickly buy their shares back in a process known as covering. As such, top hedge funds including Melvin Capital and Point72 have had to throw in the towel and close their short positions, losing over $5 billion in the process.
So why did the Reddit army decide to squeeze out Wall Street? Some have suggested that it was simply an internet community-coordinated experiment or perhaps something to pass the time. However, the key motive for many of the millennial ‘Reddit warriors’ was to challenge the rich hedge funds, in what has been seen as a generational fight against ‘boomer’ money.
J.P. Morgan has named several other stocks that may also experience short squeezes, including The Cheesecake Factory, AMC Entertainment, Nokia and BlackBerry. However, the short squeezes have caused concern among regulators around fears of illegal activity.
Picking A Side
After days of trading, top brokers including Robinhood, Trading 212 and Interactive brokers placed restrictions on purchasing online shares on Thursday, causing GameStops shares to dive by 55%.
Traders responded with outrage, accusing brokers of enacting their own market manipulation and protecting Wall Street’s interests. In fact, many of the established platforms and apps put their own needs ahead of customers. Robinhood was particularly criticised, given that it purports to democratise finance for all and aims to make Wall Street more accessible.
After shares closed down around 44% at $193.60 on Thursday, GameStop recovered to over 61% at $311.99 in after-hours trading. Robinhood made a u-turn and announced plans to lift some restrictions on Friday, though volatility in the stock is expected to continue.
Among celebrities including business magnate, Elon Musk, US politicians have also criticised the restrictions on small investors. Democrat representative, Alexandria Ocasio-Cortez, said that Robinhood’s decision to block traders whilst financial institutions are “freely able to trade the stock as they see fit” is unacceptable.
What This Means For Traders
Whilst the phenomenon has mostly occurred in America, popular shorted London-listed stocks such as Cineworld and Pearson also saw similar movements. Whether you’re trading in the US or UK, make sure to keep an eye on the markets, which will be volatile and unpredictable.
With growing scrutiny around how certain brokerages are handling the squeeze, some traders might also now be considering taking their capital elsewhere. If you’re concerned about your broker restricting trading in any of your favourite shares, there are plenty of other top brokers out there.
Brokers
#1 - Forex.com
Forex.com boasts a global reputation with multiple awards and 20+ years experience. Regulated in the US, EU, UK and Canada they provide a huge range of markets, not just forex, and offer competitive fees on a cutting-edge platform. The brand also provides a suite of additional tools, from performance analytics and SMART Signals to advanced charts and strategy builders.
"Forex.com is an excellent broker for forex traders with over 80 currency pairs, tight spreads, low commissions and powerful platforms. The brand is also heavily regulated while its parent company is listed on the NASDAQ, giving it a high trust score."
- DayTrading Review Team
- Instruments: Forex, Spot Metals
- Regulator: NFA, CFTC
- Platforms: MT4, MT5, TradingView, eSignal, AutoChartist, TradingCentral
- Min. Deposit: $100
- Min. Trade: 0.01 Lots
- Leverage: 1:50
Forex Trading
Forex.com is a leading FX broker. The brand offers a wide range of currency pairs and some of the lowest fees in the industry. Spreads on the EUR/USD come in as low as 0.0 with a $7 commission per $100k.
Stocks Trading
Forex.com offers access to thousands of US, EU and UK stocks, with spreads of just 1 point. Speculate on household names as well as new IPOs. US stocks are available from just 1.8 cents per share.
Pros
- Top-rated forex and CFD broker
- Fast execution speed of less than 1 second
- Respected and trusted broker overseen by tier-one regulators including the US SEC
Cons
- No copy trading platform
- Investment offering varies between countries
- $15 monthly inactivity fee
#2 - eToro USA
eToro is a social investing platform that offers stocks, ETFs, options, and crypto. The broker is well-known for its user-friendly community-centred platform and competitive fees. With FINRA and SIPC oversight and millions of users across the world, this brand is highly respected. eToro securities trading is offered by eToro USA Securities, Inc.
"eToro is a top pick for users looking for social investing and copy trading. With a low deposit, zero commissions and an intuitive platform, the broker will meet the needs of newer traders."
- DayTrading Review Team
- Instruments: Stocks, Options, ETFs, Crypto
- Regulator: SEC, FINRA
- Platforms: Own
- Min. Deposit: $10
- Min. Trade: $10
Stocks Trading
Trade popular US stocks and ETFs with zero commissions while fractional shares and options are also available. The eToro Academy and excellent market research are also huge bonuses for newer investors.
Crypto Trading
eToro US leads the way in cryptocurrency trading. 1% fee for buying or selling crypto added to the spread (from 0.75% for BTC), with their own wallet service and the largest number of cryptos to trade in the market. eToro copy trading is only for cryptos. Crypto asset investing is highly volatile and unregulated. No consumer protection. Tax on profits may apply.
Pros
- eToro USA Securities is a trustworthy, SEC-regulated broker that is a member of FINRA and SIPC
- A free demo account means new users and prospective traders can try the broker risk-free
- The online broker offers an intuitive social investment network with straightforward copy trading on cryptos
Cons
- Narrower range of instruments than some competitors
- No MetaTrader 4 platform integration
#3 - NinjaTrader
NinjaTrader is a US-headquartered and regulated brokerage that specializes in futures trading. There are three pricing plans to suit different needs and budgets, as well as ultra-low margins on popular contracts. The brand's award-winning charting software and trading platform also offers a high-degree of customization and superb technical analysis features.
"We recommend NinjaTrader for high-volume futures traders looking for low fees and premium analysis tools."
- DayTrading Review Team
- Instruments: Forex, Stocks, Options, Commodities, Futures, Crypto
- Regulator: NFA, CFTC
- Platforms: eSignal
- Min. Deposit: $50
- Min. Trade: 0.01 Lots
- Leverage: 1:50
Forex Trading
NinjaTrader supports the trading of popular currencies including the EUR/USD. The trading software also offers unique features tailored to forex trading, including specific order and market windows.
Stocks Trading
Stocks can be traded by connecting the NinjaTrader platform to supporting brokers. You can then take positions on large public companies and household names via advanced trading software.
Crypto Trading
Trade micro Bitcoin futures with low fees and leading charting tools. Get exposure to Bitcoin through CME Group's centralized exchange with robust risk management tools.
Pros
- Widely respected and heavily authorized by the NFA and CFTC
- Free platform access and trade simulation capabilities
- Low fees with $50 day trading margins & commissions from $.09 per micro contract
Cons
- Premium platform tools come with an extra charge
- Withdrawal fee on some funding methods
- Non forex and futures trading requires signing up with partner brokers
#4 - OANDA US
OANDA is a popular brand offering exceptional execution, low deposit requirements and advanced charting and trading platform features. The top-rated brand has over 25 years of experience and is regulated by trusted agencies, including the NFA/CFTC. Around the clock support is available, alongside flexible contract sizes and automated trade executions.
"We recommend OANDA for US traders seeking a user-friendly platform with premium market research and a straightforward joining process. OANDA is a particularly good pick if you want a heavily regulated broker with a secure trading environment."
- DayTrading Review Team
- Instruments: Forex, Crypto
- Regulator: NFA, CFTC
- Platforms: MT4, TradingView, AutoChartist
- Min. Deposit: $0
- Min. Trade: 0.01 Lots
- Leverage: 1:50
Forex Trading
OANDA offers 68 forex pairs, more than many alternatives. The broker's in-house platform also offers impressive execution speeds and a suite of advanced charting and analysis tools.
Crypto Trading
Speculate on the world's biggest cryptos by market cap. Commissions are lower than many peers starting at 0.25%. Clients can spot trade cryptocurrencies on Paxos's itBit exchange through the OANDA platform via OANDA’s partnership with Paxos. Users can trade digital currencies in a few taps through the iOS and Android mobile app.
Pros
- Reliable, trustworthy and secure brand with authorization from tier-one regulators
- US clients accepted
- Low minimum deposit for beginners
Cons
- Customer support not available on the weekend
#5 - Kwakol Markets
Kwakol Markets is a Nigerian headquartered broker with strong regulatory oversight in Australia and Canada. A great selection of asset classes are available, including synthetic products that simulate realistic market activity. Clients can trade on the MT4, MT5 and cTrader platforms, as well as a copy trading solution whereby a fee is only paid on profitable trades.
"Kwakol Markets is a good option for newer traders with a dedicated learning academy, copy trading and a choice of reliable platforms. New clients can also sign up and start trading in four straightforward steps."
- DayTrading Review Team
- Instruments: CFDs, Forex, Stocks, Indices, Commodities, Crypto
- Regulator: ASIC, FINTRAC
- Platforms: MT4, MT5, AutoChartist
- Min. Deposit: $1
- Min. Trade: 0.01 Lots
- Leverage: 1:1000
CFD Trading
CFDs are available on a breath of underlying assets, including stocks, indices, commodities, forex and cryptos. High leverage up to 1:500 is available alongside a 0.01 minimum lot size and award-winning software. For the tightest spreads from 0 pips, opt for the Premium account.
Forex Trading
Kwakol Markets offers a wider range of forex pairs than most competitors, with 90+ assets available. Users get fast execution speeds through the ECN model and competitive spreads. On the negative side, not all currency pairs are available on MT4.
Stocks Trading
Trade stocks with zero commissions and ultra-fast trade executions. Clients get exposure to US, EU, Asian and Russian stock markets on both the MT4 and MT5 platforms. Stocks are available as CFDs, so users will not own the underlying shares.
Crypto Trading
Trade cryptos against fiat currencies, other cryptocurrencies and metals like gold. This separates the broker from many alternatives that only offer cryptos paired with the USD. High leverage up to 1:20 on cryptos is available, plus support for Expert Advisors and copy trading.
Pros
- MetaTrader 4 and MetaTrader 5 integration
- Wide range of free learning resources such as an eBook
- High leverage up to 1:500
Cons
- High deposits for premium features
- The only base currency is USD
- Lack of deposit and withdrawal methods
#6 - Webull
Webull is a US-regulated trading app that offers stocks, options, forex, cryptos, ETFs, fractional shares and more. The firm is authorized by the SEC and FINRA with a strong trust rating. Low fees, no minimum investment and generous bonuses have made the discount broker popular with online investors.
"Webull is best for traders looking to buy and sell stocks on a user-friendly app with zero commissions."
- DayTrading Review Team
- Instruments: Stocks, ETFs, options, cryptos, forex, ADRs, fractional shares, OTCs
- Regulator: SEC, FINRA
- Platforms: Own
- Min. Deposit: $0
- Min. Trade: 0.01 Lots
- Leverage: 1:4
Forex Trading
Webull offers a modest collection of 17 currencies, including majors like EUR/USD. Forex can be traded on the feature-rich investing app with real-time quotes and low spreads.
Stocks Trading
Webull offers a fantastic list of 2000+ US stocks, fractional shares, options, ETFs, OTC, and ADRs. There is no commission on stocks, ETFs, and options. Full extended trading hours is available while custom screeners and watchlists aid the decision making process.
Crypto Trading
Webull offers trading on popular cryptos like Bitcoin against the US Dollar. With 35+ tokens and premium analysis tools, traders can review market trends and identify opportunities in a few taps.
Pros
- Fractional shares
- Brokerage account plus IRA
- Respected brand with strong regulatory oversight
Cons
- High deposit and withdrawal wire fees for non-US residents
- Sometimes sudden changes in trading conditions
- Day trading is limited for customers with less than $25,000 deposited
#7 - IG Group
IG is an award-winning broker that has an excellent reputation globally. The brand-US offers spread betting, CFD and forex trading across a comprehensive suite of markets. IG is also multi-regulated, provides a great trading app and has 50 years experience.
"IG offers a superb all-round package. Beginners will appreciate the user-friendly web platform and secure trading environment while established investors will rate the 17,000+ markets and top-tier market research."
- DayTrading Review Team
- Instruments: CFDs, Forex, Stocks, Indices, Commodities, ETFs, Futures, Options, Crypto, Spread Betting
- Regulator: FCA, ASIC, NFA, CFTC, DFSA, BaFin, MAS, FSCA
- Platforms: MT4, AutoChartist, TradingCentral
- Min. Deposit: $0
- Min. Trade: 0.01 Lots
- Leverage: 1:30 (Retail), 1:250 (Pro)
CFD Trading
IG offers an impressive suite of 17,000+ CFD instruments. Negative balance protection ensures accounts cannot drop below zero while custom price alerts and the IG Academy enhance the trading experience.
Forex Trading
IG offers currency trading on its award-winning web platform and mobile app. Comprehensive charts and forex analysis tools are also available through ProRealTime.
Stocks Trading
IG offers 13,000+ shares, with more listed firms than most competitors. Fees are low with no commission on US stocks. Extended hours trading is also available alongside ultra-fast execution speeds of 0.014 seconds.
Crypto Trading
11 popular cryptos are available, plus two crypto crosses. A crypto index is also offered, following the value of the top 10 digital currencies by market cap. All cryptos are available via CFDs.
Pros
- IG offers great educational materials including an extensive library of training and support on how to day trade successfully
- Over 17,000 assets are available spanning stocks, forex, commodities, baskets, futures, options and more
- Share dealing and ISAs are available for longer term investing
Cons
- Inactivity charge
- No copy trading platform
#8 - Pocket Option
Founded in 2017, Pocket Option is a binary options broker offering up/down contracts on forex, stocks and cryptocurrencies. With over 100,000 active users and a global reach, the brand has proven popular with budding traders. Pocket Option also supports dozens of payment methods and has a low minimum trade of just $1.
"We recommend Pocket Option for aspiring binary options traders looking for copy trading services and a low minimum investment."
- DayTrading Review Team
- Instruments: Binary Options, Currencies, Commodities, Stocks, Indices
- Regulator: IFMRRC
- Platforms: MT5
- Min. Deposit: $50
- Min. Trade: $1
Forex Trading
Binary and OTC options can be purchased on over 40 foreign exchange pairs. Typical payouts are also decent at 81% and users can trade forex binary options in just a couple of clicks.
Stocks Trading
Trade 30 of the most popular American multinational stocks including Microsoft and Google. Payouts on big brands come in at a decent 92% while indices are available up to 67%.
Crypto Trading
Pocket Option supports major cryptocurrencies on a beginner-friendly app. Over 10 leading cryptocurrencies are available with very high leverage up to 1:1000.
Pros
- Clients accepted from over 95 countries
- Trading tournaments and competitions
- Turbo binary options
Cons
- IFMRRC is not a reputable regulator
- No MT4 trading platform
- The expiration time is limited on trades
#9 - IQCent
IQCent is an offshore binary options and CFD broker based in the Marshall Islands with 10+ payment methods and a low $50 starting deposit. With 100+ assets, around the clock trading and high payouts the brand is popular with aspiring traders.
"IQCent will appeal to newer traders who want a platform where they can trade both binary options and CFDs with copy trading support and regular contests."
- DayTrading Review Team
- Instruments: Binary Options, CFDs, Forex, Stocks, Indices, Commodities, Crypto
- Regulator: IFMRRC
- Platforms: TradingView
- Min. Deposit: $250
- Min. Trade: $0.01
- Leverage: 1:500
CFD Trading
IQCent CFDs are available on forex, stocks, indices, commodities and cryptos with leverage variable by asset to a maximum of 1:500, which is higher than many alternatives. 24/7 customer support is also available to assist new users.
Forex Trading
IQCent traders can access CFDs or binary options on 40+ forex pairs, including majors, minors and exotics. CFD spreads start from 0.7 pips and binary options payouts are decent up to 95%. Trading takes place through the broker's proprietary platform with advanced analysis tools.
Stocks Trading
IQCent offers CFDs and binaries on four German stocks: Lufthansa, Deutsche, Daimler and BMW. Traders can also speculate on stock markets via seven leading indices including US30, S&P500 and FTSE100.
Crypto Trading
IQCent offers 17 crypto assets through its own platform, including Bitcoin, Ethereum and Litecoin. Leverage on crypto CFDs is limited to 1:10 while binary options payouts vary by token but are competitive.
Pros
- Trading contests with cash prizes
- Binary options with 98% payouts
- Instant deposits and fast withdrawals
Cons
- Not overseen by any highly respected regulator
- Poor selection of stocks with just four equities
- A short period before an inactivity fee is charged
#10 - Moomoo
Moomoo is an SEC-regulated app-based investment platform that offers a straightforward and affordable way to invest in Chinese, Hong Kong and US stocks, ETFs and other assets. Margin trading is available and the brand accepts low minimum deposits while also decent several bonuses.
"Moomoo will appeal to stock traders who want to build an investment portfolio through a user-friendly app with low to zero commissions."
- DayTrading Review Team
- Instruments: Stocks, Options, ETFs, ADRs, OTCs
- Regulator: SEC, FINRA, MAS
- Platforms: Own
- Min. Deposit: $0
- Min. Trade: $0
Stocks Trading
Moomoo offers online US and Hong Kong stocks, and China-A shares trading across options, ETFs, ADRs, OTC, plus IPOs on a proprietary trading platform. The zero commissions, no account minimum and free level 2 data are standout features.
Pros
- Great mobile app for beginners
- Access to full extended pre-market trading hours
- Superior trading analytics and insights
Cons
- Aimed mainly towards US residents
- No negative balance protection
- No phone or live chat support