What’s going on with the Square stock trading app? Why are users jumping ship from Robinhood and heading over to this user friendly investing and trading application? They now allow trading and don’t restrict your trades. After the GameStop debacle, this will be a boon for Square.
Table of Contents
Why Square App Is More Popular Than Ever
So why is $SQ app more popular now? That may be because Wall Street got flipped upside down this past week. The story that everyone’s talking about on the news, on social media, anywhere you look, is about GameStop (NYSE:GME). But what’s going on? This isn’t the first time we’ve written about the Reddit subgroup r/WallStreetBets here on Bullish Bears. But they’ve quickly become the most disruptive financial group on the internet.
The current chaos on Wall Street revolves around r/WallStreetBets or WSB, identifying certain stocks with a high percentage of short positions against them.
Most of these short positions are held by financial investment firms; specifically the dreaded short sellers that prey on the price of a stock going down.
WSB has made it their mission to squeeze these shorts until they’re forced to either buy out of their positions or take a substantial loss. Which is great for the Square stock trading app.
This action has actually attracted the attention of much of social media including WSB support from Elon Musk, Chamath Palihapitiya, Jon Stewart, Dave Portnoy, and even AOC herself.
Much of social media is behind WSB and the so-called 99% who are finally using the wealthy 1% ‘s own financial instruments against them in this coordinated short squeeze of epic proportions.
Wait, What Is a Short Squeeze?
A lot of people actually don’t understand the financial side of what is happening here. Yes, WSB and the millions of retail investors are throwing their money into GameStop to stick it to the man! But why?
A short squeeze is what happens when a lot of short positions are stuck in the wrong direction. A short position is a bet on the price of the stock falling at some point in the future.
These stocks like GameStop, like AMC (NYSE:AMC), like BlackBerry (NYSE:BB), and like Express Inc. (NYSE:EXPR), all had large short positions by institutional investors.
So what happens when the price of the stock rises and moves against the short positions? Well, those positions become less valuable.
Then eventually, the short position holder needs to buy out of that position or else risk losing everything. What happens when buyers are buying the stock at the same time that a short seller has to buy shares of the stock to hedge?
It creates a massive upwards movement of the stock’s price as the influx of shares bought skyrockets. This is why we saw GameStop’s stock price hit orbit at a ridiculous $483.00 per share.
Is GameStop a company that needs a $13 billion market cap and $483.00 stock? Absolutely not. But the mechanism of the short squeeze and supply and demand, forced the price to rise higher.
And the best part is, this is far from over. Which means great things for the Square stock trading app.
Noted Short Sellers Get Roasted by WSB
Perhaps one of the most satisfying angles of this whole thing is the fact that institutional short sellers who thrive on stocks and companies performing poorly, are the ones who are getting hammered.
Not that we’d ever wish people to lose money, but if we did, it would definitely be short sellers and hedge fund managers who profit off of the 99% seeing their portfolio in the red.
Two notorious short selling firms, Melvin Capital Management (MCM) and Citron Research have already reported they have lost 100% of their initial investments.
MCM actually had short positions valued at nearly $55 million. And in order to fill those, had to take a loan from Citadel amongst others in the amount of $3 billion.
This was just to keep the hedge fund afloat. Melvin Capital was the first victim of the WSB onslaught. You can be sure they won’t be the last.
Citron closed out their position at a complete loss. Managing partner Andrew Left wrote a scathing letter on his Twitter that has since been deleted.
Left claimed that members of WSB had openly harassed and even threatened his family. While watching Citron lose is entertaining for most retail investors, threats against anyone’s family shouldn’t be tolerated.
Citron famously releases short seller reports that list things that are wrong or could go wrong with a company; in order to push the price of the stock down. Notable Citron reports include Tesla (NASDAQ:TSLA), Shopify (NYSE:SHOP), and NanoX (NASDAQ:NNOX).
The Empire Strikes Back!
Investors woke up to some confusion on Thursday. Several brokerages including the popular Robinhood app, halted the ability to buy more of these WSB stocks.
As can be expected, WSB and social media were outraged by this. They called Robinhood out for illegal trade manipulation. Heavy online heat from Dave Portnoy and others caused a migration of users away from Robinhood by the end of the trading day.
Yes, you heard that correctly. Robinhood halted buying of these stocks. Not selling, just buying. Why would they do this?
A majority investor in Robinhood stands to lose quite a bit from this; the aforementioned Citadel. It was also reported that just before ordering Robinhood to halt trading, Citadel re-entered their short positions.
Essentially locking in the fact that the price of GameStop would plummet as investors could only sell their positions. Wait, that doesn’t seem right.
It’s not. In fact, it could very well be deemed illegal if it comes to light that this is what happened. But this is exactly the type of back room shenanigans and corruption that WSB is waging war on.
It’s not just to cost these institutional investors money on their short positions, it’s creating a voice and a movement for the 99% who are tired of having the stock market manipulated against them.
Much has been made about Robinhood turning their backs on the retail investors that made them who they are today. Its homepage cites that its “mission is to democratize finance for all”.
Although what we’ve seen from Robinhood over the last 24 hours is hardly the case. With WSB investors and retail investors around the United States frustrated with the way Robinhood has handled this, many of them have decided to move on to a new mobile trading platform.
Square Stock Trading App to the Rescue!
The mobile platform is fintech industry leader Square (NYSE:SQ) and its popular Cash App. With the large migration to its platform on Thursday, Square did have to impose some restrictions on its trading platform.
But nothing like the regulations that Robinhood implemented. Square could actually emerge from all of this as a real winner.
Square was founded back in 2009 by current Twitter CEO Jack Dorsey, as a way for small businesses and independent vendors to accept credit card purchases through their mobile phones.
The name Square comes from the square-shaped addons that customers can swipe their credit cards through. Square eventually evolved into a complete fintech solution. Offering financial services, merchant services, mobile payments, and digital currency transfers.
Square Cash, or more commonly referred to as the Cash App, has turned into one of the most flexible financial apps on the market. Its main rival is PayPal’s (NASDAQ:PYPL) Venmo app; as well as the Robinhood trading app.
Here, people are able to make payments, make investments in stocks, and even buy and sell cryptocurrencies such as BitCoin and Ethereum.
Square intends the Cash App to be an all in one digital financial solution as we become increasingly reliant on our mobile phones. The company is currently also in the process of allowing instant loans of up to $200 for Cash App users.
In Square’s recent quarterly earnings call it reported that Cash App transactions doubled since investing and trading stocks was implemented. Over 2.5 million users have used the Cash App for buying stocks.
The Cash App makes money for Square by charging for transactions and credit card purchases using the app. Square has already seen its stock price surge over 166% during the past 52-weeks. The company has also seen its market cap balloon to around $100 billion.
Is Robinhood Dead?
Well, not exactly. But it certainly has put itself in a position where its reputation may now be permanently damaged. Before this, Robinhood was looked at as a trading platform for the 99% who could just jump onto their mobile phones and make some casual stock trades.
But the recent decisions made by Robinhood and Citadel have left a bad taste in our mouths. Other brokerages like Schwab and E*TRADE also halted trading of those WSB stocks.
However, it was really Robinhood that was the platform of choice and had truly become synonymous with the everyday investor.
On Thursday night it was reported that Robinhood had tapped into its massive credit lines to secure up to $1 billion in loans to help survive the upcoming week of trading.
Earlier in the day it was believed by some that Robinhood would have to shut down for good. But that has not turned out to be true. Two of the lenders include Sequoia Capital and Rabbit Capital.
A report said a dozen House Republicans sent a letter to the SEC to investigate collusion between Robinhood and several prominent institutional investors.
The timing could not be worse for Robinhood. The mobile trading platform was eyeing an initial public offering or IPO at some point in 2021.
It was previously valued at around $12 billion in its first round of capital raising. However, with its recent troubles and tarnished reputation, you have to wonder if making a Wall Street debut would be the smartest decision right now.
Once this all dies down we could see Robinhood still push for its debut on Wall Street. But at this point it may be hard pressed to find investors; especially if it is ever being investigated by the SEC.
What Happens Next?
That’s definitely the question of the hour. WSB has grown by over three million members over the past few days. And each and every one of them are seething at what transpired on 1/28/21.
The plan, at least according to WSB, is to continue to buy and hold stocks like GameStop until all of the institutional investors are forced to leave their positions.
Is this actually legal? Absolutely. That is one of the best parts about this whole ordeal; it’s using the billionaire’s own financial tools against them.
Judging from the financial assistance that Robinhood has taken, it seems like it’s bracing itself for the incoming tidal wave of retail money heading to these stocks.
It will be interesting to see how long human nature can hold out until greed begins to rear its ugly head. Remember, most of these WSB investors are not millionaires.
So if they see their positions in AMC or BlackBerry or GameStop triple or quadruple in one day, we may see a bit more profit taking then we think.
If this goes according to WSB’s plans, it could go down in history as one of the largest transfers of wealth on the stock market ever. We’re talking billions of dollars from institutional investors into the hands of the 99%.
This, more than anything, is probably why it has attracted so much attention from all over the world. In fact, markets in Asia and Europe opened and the demand for GameStop and all the other WSB stocks was through the roof.
A Once in a Lifetime Event
As an investor this has been perhaps a once in a lifetime event that has been incredible to watch from the sidelines. The amount of support that WSB is receiving shows just how vast the wealth inequality is in the world; not just in the United States.
WSB supporters from every corner of the Earth have rallied and united over David toppling Goliath at Goliath’s own game. The sheer irony and poetic justice is enough to make all of us cheer for the underdog.
A larger point that’s being overlooked for the most part, is that this whole process has made it transparent as to just how easy the stock market has become to manipulate.
WSB is not the first online group to manipulate stock movement and you can be sure that it won’t be the last. Earlier this year, a group on FinTwit managed to make millions of dollars in a short amount of time by shorting the U.S. shale industry; weeks before any Wall Street analyst could see it coming.
The age of the internet has provided us with more tools and resources than we could have ever imagined. And the most important of those is perhaps the communities that are being created.
Conclusion: Square Stock Trading App Is a Good Alternative
So who knows if WSB is going to be successful. I certainly don’t. A myriad of things could go wrong at any minute. And this great cause could deteriorate faster than the blink of an eye.
How many people here are actually loyal to the cause and how many are just in it to make a quick few bucks? It’s a fascinating case study in mob mentality and the momentum that can be built using the internet as a platform.
There could be instant millionaires made. But always think about the people who are going to inevitably get caught buying in at the top, and lose everything based on bad timing or greed.
This opportunity may never happen again. And I for one will be cheering for the 99% as they go to war on a socioeconomic battlefield of puts and calls.