But what actually is a short squeeze? And where could the next short squeezes emerge? Let’s take a deeper look at the growth of the biggest investing trend of 2021: What is a short squeeze?īefore we cover what a short squeeze is, let’s first look at how shorts work. However, these links between payment for order flow apps and higher retail trading volumes may have paved the way for the larger prevalence of short squeezes like that of GameStop and AMC. Robinhood has since had to deny accusations that the business has been gamifying investing, and the app recently removed its default confetti celebration animation for new users making their first trade. “Goldman Sachs recently raised its expectations for stock demand by retail investors in 2021, from $100B to $350B.”Īs the data above shows, many of these new retail investors became active on Robinhood, an investing app that makes its money through payment for order flow - which relies on trading volumes to become profitable.
“A survey by Deutsche Bank, which included 430 retail investors, showed that the respondents were going to invest, on average, 37% of all their stimulation money into stocks,” noted Manturov. Short squeezes may be nothing new, but it seems as though the latest trend of pumping stocks based on sentiment via social platforms like Reddit has been a watershed moment for the world of investing.Īs we can see from the chart above, meme stocks have consistently outperformed the S&P 500 over the course of 2021, with sentiment-based trading transforming unloved stocks into buying opportunities as retail investors collaborate to send asset values soaring.Īccording to Maxim Manturov, head of investment research at Freedom Finance Europe, government stimulus packages have paved the way for an unprecedented number of arrivals into the retail investing scene. As the year has progressed, we’ve seen many more squeezes on popular stocks via coordinated social media investors and snowballing sentiment towards popular or meme-based assets. In as early as January, we witnessed a significant squeeze on the shares of GameStop which saw a 1,500% price rally from $20 to $500 in the nostalgia stock. 2021 has been the year of the short squeeze.
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