In a triumph for collective action, sparked by online forums such as Reddit, the GME saga saw retail traders and investors take on Wall Street, and the retail crowd’s influence was far greater than any of us could have expected.
Without question there are now highly-paid analysts and quants scouring the web for the next portal such as Reddit or the next GME. As headline-generating as it all was, it also highlighted the need to educate the trading masses on more than zero commissions or how to use well-designed trading apps.
Robinhood faced significant risks throughout this saga and appeared “on the side of Wall Street” when the dust settled, given the trading restrictions they were forced to implement.
Once Robinhood buckled under trading pressure and blocked investors, GameStop shares were down 79 percent, leaving many retail investors nursing big losses. The frustration felt by customers, unable to execute their positions, led to public outcry and allegations of market manipulation in the favour of the very Wall Street “fat cats” that Robinhood was morally against. Moreover, by appearing to be working with the Wall Street establishment, rather than working for “the little guy” as they purport to serve, Robinhood appeared to undermine their business model and reputation.
While the event left analysts divided, undoubtedly the movement highlighted that looking ahead, investor education covering numerous topics, requires vast improvement and attention. The onus is now on brokers to respond accordingly, through the employment of clear and consistent customer communication. Without it, the underlying forces of the market might mean next time a Reddit rebellion comes around, it will not play in favour of the retail investor in the same way.
Risks for the brokers
For those with industry experience, the decision of Robinhood to limit the positions of its customers made sense. Too many customers stockpiling into trades, all in one direction, can prove very dangerous to the brokerage and its traders. Robinhood and its customers struggled to find common ground on that topic and consequently, the brokerage was left with a black eye.
However, those who have been account holders with brokerages will relate to the frustration of having orders rejected, or slipped to unfavourable prices. It’s natural to look for someone to blame in that situation and you do not want someone telling you that your position is ‘unable to execute’. Positions not executing and orders not carried out will cause quick and visceral outcry against these financial institutions – still reeling from reputation fallouts from the previous financial crisis.
Lessons to be learned
Skilling and undoubtedly all of our counterparts, have watched the Robinhood reaction with curiosity. It acts as a case study in marketing messages and crisis communication. Skilling attracts both new and experienced traders much like Robinhood so it has caused us to carefully consider our stance and how we educate and communicate with our customer base.
Mishaps in communication and perception can sting for a long time. It is my assumption that for quarters or years to come Robinhood will face a healthy share of ‘detractors’ offering warning messages to would-be account holders when they seek advice through online forums, message boards, messaging apps, or social media. Those who went through the GME sage will likely tell their tales for years to come.
Michael Kamerman is CEO of Skilling.