Niche communities on Reddit (NYSE: RDDT) tend to flourish under the care of a dedicated user base. In fact, there is a particularly notorious financial market-related subreddit called r/wallstreetbets that has attracted millions and sparked significant controversy over the years. Today’s article will explore r/wallstreetbets tactics, its “meme” strategies, and other methods advocated by the subreddit’s community.
About r/wallstreetbets
The subreddit defines itself as “like 4chan found a Bloomberg terminal.” It is comprised mainly of novice traders and investors who shun established investing practices and seek returns by investing in popular “meme stocks.” Nonetheless, it has shaped some major financial events, such as the GameStop short squeeze in 2021.
Widely considered a part of “meme culture,” r/wallstreetbets features edgy humor and characteristic, frequently offensive language. Users refer to themselves as “degenerates,” “retards”, and “apes” and use terms such as “stonks” for stocks, “diamond hands” for people who stick to holding strategies, and “tendies” for gains. The “Meme Man” has become a sort of mascot for the subreddit, and members frequently cross the line between sincere investing advice and parody.
Despite its controversial and humorous nature, high-profile people have subscribed to r/wallstreetbets, including Martin Shkreli, Mark Cuban, Mr. Beast, and Pokimane.
The fundamental r/wallstreetbets strategies
Although controversial and frequently bordering gambling, r/wallstreetbets strategies have a dedicated community, which counts over 15 million users as of April 10, 2024. These can be summed up as follows:
High-risk, high-reward
The rule of thumb for investing is that low risk makes a positive outcome more likely but limits the potential returns. On the other hand, high risk decreases the likelihood of success, but when it happens, the returns are much more lucrative.
Redditors from r/wallstreetbets take this formula to the next level. In fact, most subreddit users aim for big gains using speculative methods, favoring underdog stocks and unlikely candidates for the slim chances of multiplying the initial investment.
If you ask r/wallstreetbets, always choose the riskier but more lucrative option.
Short squeezes
WallStreetBets traders are known for their antagonism toward large investing companies and what they consider to be market manipulation by massive hedge funds and corporate investors.
As the big market players often participate in shorting, the subredditors encourage buying heavily shorted stocks to trigger price surges. The most common example is the GameStop short squeeze in January 2021, which caused enormous losses for certain hedge funds (such as Melvin Capital) and earned substantial returns for certain r/wallstreetbets participants.
Elon Musk popularized the event in a tweet. Subsequently, the number of subreddit subscribers more than tripled in five days, going from 2.06 million subscribers on January 24 to 6.2 million on January 29, 2021.
Options trading
In line with their high-rewards-fast attitude that disregards high risk, one of the favorite investing approaches of r/wallstreetbets investors is options trading.
Stock options are financial contracts that enable investors to buy a stock at a fixed price over a fixed period. Two types of such options exist: put, which is a bet that the stock price will fall, and call, which bets on the stock price rising. Notably, options trading relies heavily on leverage.
While the reward potential is high, numerous risks are involved, and you can lose more than what you initially invested. However, the prospects of high rewards that come quickly are more than enough for the infamous subreddit.
Viral and meme stocks
In contrast to blue-chip stocks, meme stocks are often stocks popular on social media platforms with trending or speculative value. Due to their perceived potential and despite the risk of such investments, meme stocks are among the favorite financial assets on r/wallstreetbets.
In addition to the GameStop already mentioned, Redditors have embraced AMC (NYSE: AMC), Ideanomics (NASDAQ: IDEX), Rivian (NASDAQ: RIVN), and Palatin Technologies (NYSE American: PTN), among others.
YOLO trades
The term “YOLO” here speaks for itself. Meaning “you only live once,” it implies that you should disregard the high level of risk and chase the high reward, both for the thrills and for the slim chance of landing a massive profit.
Many Redditors have lost on their YOLO trades, but this did not stop the trend. There is virtually no difference between YOLO trades and gambling, but this does not seem to bother the persistent subreddit members.
Cryptocurrency trading
Despite (or because of) high volatility, cryptocurrencies remain some of the frequently discussed and favorite financial assets in r/wallstreetbets. Although many conservative investors discourage investing in such unstable, thus risky assets, it remains a hot topic on r/wallstreetbets.
Leverage and margin trading
Margin trading is yet another risk-and-reward-increasing approach used by meme investors. It boosts the trading power of your investment and increases the potential profits, but it also multiplies the losses you can suffer, enables margin calls that can erase your position if not met, and increases sensitivity to market volatility.
Well, if you disregard risk, as r/wallstreetbets traders casually do, there are no downsides, right? But seriously, do not use leverage and margin trading if you are not sure how it works or doubt the chance of success of your investment.
The bottom line
If you take the conservative investing rules and do precisely the opposite, you might end up with something that resembles the tactics employed by r/wallstreetbets investors. Is it recommended? No. Will it lead to a sustainable increase in wealth? Not likely.
Is it impossible for such a bet to gain profit? Well, that is also a no.
Although frequently hazardous, casually nonsensical, or deliberately risky, “degenerate” investments sometimes deliver returns. When they do, they tend to make headlines like we saw during the 2021 GameStop squeeze. However, the choice of whether you should embrace the Meme Man and “go wild” is entirely yours, with the associated consequences, both positive and negative.
Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.
