It’s not exactly a new thing to call the stock market a vast casino, or to suggest that traders are little more than glorified gamblers. But, thanks to the rise of mobile trading apps and an army of Reddit speculators taking high stakes risks in their bedrooms, the whole “stock market = casino” thing is on more people’s lips than ever before.
Take Keith Whyte, executive director of the National Council on Problem Gambling, who recently said “the online day trader with problems is indistinguishable from the online gambling addict”, and compared mobile broker apps like Robinhood to casino websites.
The general public was first alerted to this brave new world by the GameStop earthquake, which shook markets early this year. It was depicted in the media as an epic face-off between the “little people” (ie, online day traders congregating on Reddit) and the scheming, billionaire masters of Wall Street. And, to be fair to the media, this is pretty much exactly how it was.
The focus of their tug-of-war was the GameStop chain of videogame stores, which had fallen on hard times as a result of Covid-19 and the general rise of online shopping. The Wall Street kingpins did what they always do with faltering companies, which was to “short sell” the stock. This means borrowing shares in the company, selling them straight away, then waiting for the price of the shares to plummet as the company’s fortunes continue to wane. At which point, the clever trader buys the shares back at the new, lower price, keeping the difference as profit.
The many traders on the subreddit r/wallstreetbets saw what was happening, and embarked on a bold plan to sabotage the short sellers by buying up lots of GameStop stock. This inflated their value to such an extent that GameStop suddenly became a $10 billion company, and the Wall Street short sellers were saddled with eye-watering losses. Meanwhile, many Reddit traders made big profits as their shares soared in value.
Cause for institutional concern?
While the whole saga has been celebrated as an uprising by the silent majority against the 1% elites, many experts have voiced concern about the risks to online traders who get swept up in the fever of buying and selling. GameStop shares have in fact tumbled in value since the January frenzy, meaning Reddit traders are faced with the sweaty, heart-pounding dilemma of whether to cash out now or wait to see what happens next.
These are the treacherous waters which traders enter when the values of companies are artificially boosted way beyond what they’re actually worth. It causes the stock market to behave erratically, bringing sudden wins and losses that aren’t based on anything “real” – rather like a casino. Of course, this kind of thing has been going on for a long time, but it’s the mood that’s changed. On r/wallstreetbets, there’s a kind of devil-may-care, gung-ho attitude, with members goading and shaming each other into buying new stocks and holding firm in the face of market downturns. Genuinely insightful analysis is mixed up with edgy memes, gleefully puerile jokes, and shrugging nihilism.
“Bankruptcy is a social construct,” one member posted back in 2020, after a GameStop-style rush on the failing car rental company Hertz. More recently, the official r/wallstreetbets Twitter page sent out the message “Bubble is a boomer term. All that matters is picking which direction to bet on today.”
This, arguably, is a casino gambler’s mindset, repackaged and presented as a legitimate way to do business on the stock market. Meanwhile, mobile trading apps like Robinhood are, in many people’s eyes, not all that different from online casino apps. Robinhood, with its zero-commission service, was central to the GameStop squeeze, with many hailing it as a valuable tool for bringing trading to the masses. Whilst these apps may not look like the online casino counterparts you may find at sites like Gambling Deals, critics say this is part of the issue. Michael Burry, the hedge fund boss made famous by the movie The Big Short, has called it a “gamified app”. Tweeting screenshots of Robinhood, he said “If this looks like a serious investing app to you, and NOT a dangerous casino ‘fun for all ages’, you’ve been #gamified.”
Robinhood stood firm in response, saying their “focus has always been on breaking down systemic barriers to investing to help more people take control of their finances.” Of course, cynics may translate “breaking down systemic barriers” as “encouraging people to bet on the stock market like they would on a roulette wheel”.
Others may point out that the new generation of investment apps can behave responsibly and prevent casino-like excitement from getting out of hand. An example of this was when trading platform Public froze trading on Hertz during its breakneck boom in 2020, warning its users that “counter to the stock’s recent surge in popularity in some trading platforms, analysts and experts deeply question the value of the stock.”
However things pan out with the apps, we do seem to be inhabiting a new normal, inhabited by fun-loving, meme-powered traders and stock-savvy celebrities fuelling the hype. Take the news in February that Dogecoin had gained more than 1,250% since the start of the year. A Bitcoin-like cryptocurrency, Dogecoin was originally created as an elaborate joke inspired by a dog meme. It’s new surge has partly been thanks to ironic/serious social media buzz from the likes of entrepreneur Elon Musk, rapper Snoop Dogg and rock star Gene Simmons.
With Simmons calling himself the “God of Dogecoin”, and a “Snoop Doge” meme doing the rounds, the craze is real, and the volatility is exciting and worrying in equal measure. Mike Novogratz, boss of crypto-focused financial firm Galaxy Digital, told CNBC recently: “Dogecoin reminds me a lot of GameStop. It was funny for a little bit, but now it’s at a market valuation where people are going to lose lots of money in Doge.”
One thing seems certain – more and more people are going to jump on the trader train, enticed by the convenience of free apps, the back-slapping enthusiasm of celebrity influencers and the dopamine-rush of making the big wins. That casino comparison may be a cliché, but it’s never felt more apt.