Meme Stocks vs. Wall Street

 How Reddit and GameStop Beat the Bankers

Reddit and Robinhood users have been caught in a firestorm over GameStop stock after shares in the downtrodden company rocketed from $20 to $400 in just two weeks. The story is now front-page news around the world. But how did we get here, and what happens next? At the core of the story is the rapid growth of r/WallStreetBets, a Reddit community famed for its series of high-stakes trades in the market. Three years ago, the WallStreetBets community had 180,000 members. Today that number stands at six million. The rise in r/WallStreetBets membership has been largely driven by the smartphone app, Robinhood. The app changed the investing industry with the launch of commission-free trading.

Crucially, Robinhood also made it free to trade options for the first time. r/WallStreetBets users prefer to trade on the options market rather than buying and selling regular shares because the strategy exponentially amplifies gains and losses. Robinhood became the perfect companion. Equally importantly, by removing the cost barriers, Robinhood allowed more young people than ever to learn about the market and start day-trading. Young people are also Reddit’s largest demographic and the most risk-tolerant from an investment perspective.

Robinhood users gravitated to r/WallStreetBets, and r/WallStreetBets users gravitated to Robinhood. The beginnings of a perfect storm were put in place.

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