WSB Founder J. Rogozinski on GME What’s Next for WallStreetBets

While we are just over a month into 2021, the year has already brought big changes to the global conversation: in the United States, angry rioters tried to prevent a new presidential administration from taking power; COVID vaccines are being distributed around the globe; and, last week, a group of Reddit traders totally upended the financial world.

If you have not been paying attention, here is what you missed: a group of rogue traders in the r/WallStreetBets (WSB) Reddit forum set out to send GameStop Inc (NYSE:GME) stock prices to the moon, and, they did, to the tune of more than 1100%.

Why？ Partially for profit, and partially for revenge: the move is now being called ‘The Big Short Squeeze’ as Wall Street hedge funds are being forced to take losses or white-knuckle their holdings into oblivion.

And, the game is far from over: WSB is out for blood. At least one hedge fund has already sustained significant damage as a result: Melvin Capital reported losses amounting to 53% in January. The drop was so huge that two other large firms, Citadel and Point72, had to inject capital into Melvin just to keep it going.

Finance Magnates · FMTV: r/WallStreetBets Founder Jaime Rogozinski

As such, WSBs GameStop pump has sparked a global conversation, or rather, a movement, centering around the role of retail traders in capital markets. Traders, CEOs, politicians and artists alike are talking about how capital markets must be redesigned to accommodate retail traders. (And, in fact, that this should have happened long ago.)

Beyond that, spin-off groups of retail investors have used Reddit to organize their powers around a number of other assets, including DogeCoin (DOGE) and XRP. Using their collective buying power, traders have pushed some of these assets more than 800%.

As the movement continues, the whole world has its eye on what WallStreetBets is up to next. Finance Magnates had the opportunity to sit down with Jaime Rogozinski, Founder of the r/WallStreetBets subreddit, to discuss the WSB movement, the GameStop saga, and what is next for WallStreetBets.

This is an excerpt that has been edited for clarity and length. To hear Finance Magnates full interview with Jaime Rogozinski, visit us on Soundcloud or Youtube.

Did Jaime See WSB as a Catalyst for a Global Movement？ “Not in a Million Years”

We asked Jaime whether he thought that the r/WallStreetBets forum would “No. Not in a million years,” he said.

“I had a hope deep-down that at some point, the types of things that were going on in WallStreetBets would generate some type of conversation. We have been in the news in the past for some relatively high-profile things that had happened, but it was still very much isolated to the world of finance. Whats happened this past week is absolutely not something that I would have ever anticipated.”

How did the group get to this point？ “The mechanics of it was simple,” Jaime said. “I started the group in 2012, and it started growing and getting more attention; it was doubling every year in size pretty consistently throughout the past few years.”

Jaime was an active moderator in the forum from the point that he created the group in 2012 until April of 2020, “so, Ive gotten to see it go through every possible growth stage,” he said.

Now, he is not actively involved in the subreddit: “I‘m watching from afar,” Jaime said. “I’m not involved in the subreddit, at least; I have all the social media accounts (Youtube, Twitter, Instagram, et cetera). So, Im involved [in that way],” he said.

Increased Access to Capital Markets Has Slowly Been Changing the Financial Landscape

But, what catapulted r/WallStreetBets from a meme-heavy group of retail traders into the center of a global movement？

Jaime explained that “whats caused a lot of this growth” can be traced to “a couple of things,” including “access to financial markets.”

“When I got started, we were in the early stages of these discount brokers,” he said. “They still charged commission for making stock trades and stock option trades, but they were much cheaper relative to what they were previously.”

Indeed, “there was a lot more variety; they were internet-based, and it was relatively simple to get started, not nearly as simple as it is today; you still had to fill out paperwork and sign it and wait several days to fund the account and things of that nature. But, as time progressed, we started to see more and more brokers come into the scene, more and more financial tools,” including ETFs, stock options, and fractional share purchases.

In other words, “pretty much anybody could start participating in the market.”

“You See Some Very Outlandish Things Take Place, You See Some Very Insightful Things Take Place” on The r/WallStreetBets Forum

The other major shift that has occurred in the financial world in the past eight years is a “cultural shift.”

“Since 2008, there‘s been some distrust [in financial markets],” Jaime said. He also authored a book on this topic, entitled WallStreetBets: How Boomers Made the World’s Biggest Casino for Millennials Profiles.

“The Millennial Generation and Generation Z both know about the stock market, but they grew up with a mindset where they cant quite trust it, but they can use it to make some money,” Jaime said.

As a result, the Millennial and GenZ traders in the r/WallStreetBets forum have adopted a highly non-serious way of engaging with each other, and with investing itself: “the forum itself is very relaxed, very ‘autist’, very funny, and very crude. It‘s very entertaining, to be honest with you. I think that’s why it attracts a lot of people. Its straight-up fun. You see some very outlandish things take place, you see some very insightful things take place.”

Before Founding r/WallStreetBets, Jaime “Noticed That There Were Cracks in the System.”

The combination of distrust in financial markets, a non-serious (almost playful) attitude toward investing, and increased access to financial products across capital markets is what Jaime believes propelled r/WallStreetBets to the center of the global stage.

And indeed, a number of platforms have been building the infrastructure to make capital markets more accessible to retail investors. However, now that retail investors are using some of the power that has been granted to them, the very same platforms seem to be showing a bit of pushback.

“Back in 2012…when I was starting to get myself really involved, getting my hands dirty and reading about these different things, I learned about ETFs (exchange-traded funds),” Jaime said, “more specifically, these ‘exotic-synthetic ETFs’, which are fancy words that masquerade for all sorts of things. But, basically, these are things that you can trade like stocks, and they represent other things,” like gold.

“But, then you start seeing these inverse leveraged products, leveraged meaning you get two or three times the return, inverse meaning you get the opposite, and it occurs to me: ‘wow, I think this is really dangerous. I think there’s a reason that you shouldn‘t be allowed to short-sell [in the first place], and these guys are giving you the option to short-sell three times as much’.”

“I noticed that there were cracks in the system,” Jaime said.

“Now, fast forward [several years] until all of these brokers were coming in,” including companies like Robinhood. “There‘s very fast growth, growth that’s so fast that I believe that they werent able to keep up with the changes over time; you started seeing some fragility, some weaknesses in how these different components interact with each other.”