Ask HN: Does the stock market protect itself? | Hacker News Reader

Ask HN: Does the stock market protect itself?

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Following the whole r/wallstreetbets $GME saga I couldn’t help but come to the following conclusion…

When market participants (in this case a hedge fund) with large diversified portfolios are threatened by a large number of individual investors the market will move to limit the power of these individuals. In other words the market will protect itself.

In the case of $GME even the major shareholders who have the majority of their funds tied up in other stocks are motivated to do what they can to end the $GME “squeeze” because over time they have more to lose from it than gain. The reason being is at best the volatility will pull the market down and at worst the liquidation of large funds will cause the market to dip more violently.

Even though this dip may only be momentary if it doesn’t correct itself quickly it will eat into quarterly or yearly profits and reported earnings. It is also likely that capital will move out of the US stock market and into other markets/investments or stores of value.

The only market participants that would like to see the “squeeze” continue are those holding a large amount of cash because they can “buy the dip”.

Am are right here? Is this how it is going to play out? Is there anything I am not seeing or taking into account?

Yes, no, maybe.

The media portrayed the binary view of the situation that this is a retail trader vs hedge funds situation. I think that more actors are benefiting from this situation on each side of the trade either by shorting the position and waiting for the dip to happen or simply riding the wave without making noise about it.

Most of the core community of /r/WSB is clear about not to making it a habit and on the other side, you already see some actors trying to exploit it by trying to replicate the meme stock trend on other stock either. Moreover, we will see on the 9th of Feb how the short ratio may have moved or not. Even if it does not have moved that do not mean that the same actors are holding their short, it can be different players shorting the position.

The good news, from my point of view, is the raised interest about the situation in the media and the society questions it raises :

* When hedge funds decides to over-short a company, is it no a way to force the hands of the market on a specific view of how the society should work?

* If your money is managed by a hedgefund (pension, 401k, etc.) could make them accountable on how they use it in the market?

* Does the playing field need to be level for retail traders have the same access to the market that others economic actors? Or will we see a stronger "Leave it to the pro" mentality emerge where retail traders are shut down or really restrained by their actions in the market?

* In our current world, most people are loosing money by stacking it in savings account due to inflation and extremely low interest rate, how that can be leveled? Day trading may not be the solution, but when you can not increase your wealth in another way than working more and trying to be the unicorn, how could you do it?

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