Hi Everyone 👋!
If you’re reading this but haven’t subscribed, join our community of +51k smart, fun & edgy investors. 👇
*This is sponsored advertising content.
As 2021 is coming to an end, it's customary to look back and reflect on the things it will be remembered for.
In that respect, financial markets were so rich on events that it feels too obvious even to list them - things like crypto, meme-stocks and SPACs have dominated most of the financial agenda.
Overall, they've been a manifestation of one central theme that will characterise 2021 for years to come - the retail revolution.
Under the Radar
SECURE, RESILIENT, SCALABLE, SIMPLE. The crypto markets are known for their extreme volatility. But Liquid Meta, a DeFi infrastructure & tech company that’s powering the next generation of open-access protocols, has been posting consistent revenues since inception in June 2020, and has exposed its investors to the emerging DeFi sector of crypto that has grown from $1.7 B to +$250 B in Total Value Locked (TVL) at present*!
*This is sponsored advertising content.
Since the GameStop saga, retail traders have been a solid force in the markets. And they made it clear that it wasn't about making money but about sending a message.
How strong of a message have they left in 2021?
Well, so strong that the excitement across major investment banks about a very profitable year is muted and saddening.
Bloomberg reports that "the wealth reeled in by elite traders and dealmakers is getting outshined by the quick riches touted by cryptocurrency fanatics, fintech whizzes and meme stocks."
The high-flying Wall Street bankers feel like they've missed out, and even their huge bonuses aren't enough to heal the wounds.
Making the 1% feel sad is quite an achievement in itself.
Of course, we all know there's no profit without risk, and for every meme-stock roaring kitty, there's a million who aren't roaring anymore.
Apart from occasional "loss porn", there is a silent cemetery of retail traders who lost fortunes taking significant risks and no longer post on WallStreetBets.
And that cemetery is only getting bigger.
This is a direct outcome of the retail revolution - it's just too easy and tempting to trade. And it makes it seem like it's very simple to make money! Which it is, but it's also very easy to lose money; however, that's not talked about as much.
Everyone hopes it won't happen. At least, not to them.
This year the revolution crossed a point where many started questioning - is it too much of a good thing?
Should markets be accessible by an average Joe, or should the government step in and protect Joe for his own good?
Should people be able to make their own trading decisions, or should they be only allowed to invest via a professional money manager?
If the retail revolution continues, how far should it go?
One side of the argument is that everyone should be able to make their trading decisions and have the freedom to choose what they do with their own money.
On the flip side, this exposes many unsophisticated investors with no financial background to risky products and investments.
Which side are you on?
Red pill - and the retail trader will have unrestricted access to all the world markets, products and information, with the freedom to trade and invest. The separation between retail and institutional will be minimal.
Blue pill - and return to life as Mr Andersen, blissfully unaware of the markets, stocks and crypto. The retail revolution is cancelled, investing is possible via professionals only, trading commissions are huge, and GameStop never happened.
Which one would you pick?
Too much of a good thing.
Markets have far too long been viewed as something for the 1%. It's no surprise that the name of the movement in 2011-12 was Occupy Wall Street.
Any attempts by the government to stop or block retail market access will inevitably be viewed as an attempt to serve the 1% and keep the wealth concentrated among the rich.
Yes, there are certainly areas that should have investor protection rules, such as various private placements. Frequently there just isn't anything to google about a private transaction and the only source of information in the smooth-talking salesperson:
However, in the context of a listed and transparent equities market, it should be about choice. The information is there, and everyone should be able to go nuts, if they so wish.
If someone doesn't feel like they have the time or financial knowledge to make their own investment decisions, they can always seek professional help or invest in diversified index funds.
But why should that limit the rest of the retail traders who do want to take matters into their own hands?
The US Congress and the SEC seems to think differently.
Retail brokers that brought markets to the general public have come under significant scrutiny this year - often for the right reasons.
But one central claim was about the so-called "digital engagement practices". This refers to the gamification of trading where brokers make investing seem like a fun game to win instead of a serious and responsible process.
And the SEC is taking it seriously. MarketWatch reports that "the SEC is seeking public input on the digital engagement practices of online broker-dealers as it considers new rules that could set limits on so-called gamification techniques that critics say encourage overuse of investment apps."
SEC Chairman Gensler stated that “We need to ensure investors using apps with these types of features continue to be appropriately protected.”
But retail traders aren't as naïve as the SEC would like to believe.
Behind the memes, WallStreetBets includes many sophisticated due-diligence articles and a wealth of educational resources for those interested. The breadth of insights from the Financial Twitter (FinTwit) community is overwhelming and substantially more than one has the time to consume.
For those who seek, the resources are there.
Moreover, criticizing Robinhood for making their app, so fun and engaging that investors need to be protected from it just seems... strange. After all, the US public can be trusted with a gun, but not with their iPhone brokers app?
Yes, investing in stocks is risky, and investors can lose money. But that's part of the process since there's no return without risk.
And taking responsibility for your own investment decisions is part of the learning process. It's impossible to learn the pain of losing money from textbooks or paper-trading accounts.
But instead, retail trading seems like another area where a sense of personal responsibility is taken away.
Is this a game to you?
The entire premise of gamification and the idea of making finance fun is interesting to explore.
Brokers are blamed for making apps addictive and look like it's not actually real money. Sure, but why is that an issue for brokers specifically?
Casinos have been doing that for, like, ever and developed many tricks to keep people engaged and gambling. They use chips instead of real money and make customers lose a sense of time by removing clocks and shutting out natural light.
Moreover, many companies try to do their best to make customers use their product. It's gotten to a point when sometimes it's easier to buy a product than not (think Amazon Prime). And retail brokers aren't an exception - if they can make their product simple and easy to use, why wouldn't they?
Lastly, financial media has been making finance fun and game-like for decades. A case in point is Jim Cramer with his buzzers and sounds. Buy, buy, buy! He was making finance memes before it became mainstream! If that's not an example of incentivizing and encouraging people to trade, then I don't know what is.
The issue of gamification has been unfairly overhyped for retail brokers. However, it really isn't that big of a deal for the SEC or Congress to even pay attention to it.
If they want to improve the workings of the financial system for the retail investors, there are plenty of other things to address. For example, they can start by fixing that issue which prevented people from executing trades on 28th January.
Or by investigating insider trading by policymakers.
Or help improve retail trading platforms that commonly experience outages and prevent people from trading and managing their risks.
And there are many other more important issues than gamification and confetti on Robinhood's screen.
Some things are best left alone.
Disclaimer: The publisher does not guarantee the accuracy or completeness of the information provided in this page. All statements and expressions herein are the sole opinion of the author or paid advertiser.
Grit Capital Corporation is a publisher of financial information, not an investment advisor. We do not provide personalized or individualized investment advice or information that is tailored to the needs of any particular recipient.
THE INFORMATION CONTAINED ON THIS WEBSITE IS NOT AND SHOULD NOT BE CONSTRUED AS INVESTMENT ADVICE, AND DOES NOT PURPORT TO BE AND DOES NOT EXPRESS ANY OPINION AS TO THE PRICE AT WHICH THE SECURITIES OF ANY COMPANY MAY TRADE AT ANY TIME. THE INFORMATION AND OPINIONS PROVIDED HEREIN SHOULD NOT BE TAKEN AS SPECIFIC ADVICE ON THE MERITS OF ANY INVESTMENT DECISION. INVESTORS SHOULD MAKE THEIR OWN INVESTIGATION AND DECISIONS REGARDING THE PROSPECTS OF ANY COMPANY DISCUSSED HEREIN BASED ON SUCH INVESTORS’ OWN REVIEW OF PUBLICLY AVAILABLE INFORMATION AND SHOULD NOT RELY ON THE INFORMATION CONTAINED HEREIN.
No statement or expression of opinion, or any other matter herein, directly or indirectly, is an offer or the solicitation of an offer to buy or sell the securities or financial instruments mentioned.
Any projections, market outlooks or estimates herein are forward looking statements and are inherently unreliable. They are based upon certain assumptions and should not be construed to be indicative of the actual events that will occur. Other events that were not taken into account may occur and may significantly affect the returns or performance of the securities discussed herein. The information provided herein is based on matters as they exist as of the date of preparation and not as of any future date, and the publisher undertakes no obligation to correct, update or revise the information in this document or to otherwise provide any additional material.
The publisher, its affiliates, and clients of the a publisher or its affiliates may currently have long or short positions in the securities of the companies mentioned herein, or may have such a position in the future (and therefore may profit from fluctuations in the trading price of the securities). To the extent such persons do have such positions, there is no guarantee that such persons will maintain such positions.
Neither the publisher nor any of its affiliates accepts any liability whatsoever for any direct or consequential loss howsoever arising, directly or indirectly, from any use of the information contained herein.