Retail traders were once an afterthought in the stock market. Those days are over.
Anxious to know retail’s next move, nearly all hedge funds are monitoring retail traders on social media:
Fund managers who might have once derided small-time day traders as “dumb money” are scouring social-media posts for clues about where the herd might veer next. Some 85% of hedge funds and 42% of asset managers are now tracking retail-trading message boards, according to a survey by Bloomberg Intelligence.
J.P. Morgan is offering a product to top clients that helps them predict retail traders’ next move. Those high dollar clients are likely hedge funds:
Data shared with clients include the size of retail flows, the most discussed stocks on social media and companies that are likely to face a retail ‘squeeze’ — when small investors rush to a stock that hedge funds are betting against.
This comes as retail traders form an ever-larger part of the market. From the WSJ:
Individual traders in 2021 purchased a net $292 billion of U.S. stocks and exchange-traded funds, according to Vanda Research’s VandaTrack platform, which tracks and sells data on the purchases of U.S. equities by individual investors. That is more than seven times the amount in 2019. Individual investors so far appear poised to continue similar levels of buying activity in 2022.
But it will be hard for retail traders to outmaneuver hedge funds if they always know retail’s next move. The solution may be to adopt a tool long used by crypto traders: encrypted messaging.
Applications like Signal, Telegram or Whatsapp make it easy to form groups and send encrypted messages. This could be a good way for retail traders to organize and coordinate trades.
After all, it’s much easier to burn hedge funds in a short squeeze when they don’t know you’re about to start buying the stock.
I’m curious to see if retail stock traders will adopt secure messaging technology as a weapon against hedge funds. In the mean time, remember: Big Brother is watching you.
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