The rise in meme stocks ushered in a new era of investors in Wall Street. The retail investor, a novice who doesn’t come with a bloated portfolio or years of ‘Street’ credibility, has played a big role in investor behavior. These influencers galvanized on Reddit, StockWits and other online forums, and over a few months sent soaring the respective prices of GameStop and AMC on Wall Street. It was surprising how these individuals managed to operate in stealth for many weeks to select weak stocks, get others to buy in to their objective and catapult the stock price to all-time highs over a short period.

For investors who had a stake in these meme stocks, time is essential as fractions of a second matter when placing high-stakes/high-risk trades that rely on fast execution and timely market data to maximize gains. Strong cybersecurity is necessary for financial trading services organizations to allow investors, retail investors or hedge fund managers, to execute trades smoothly. Network monitoring provides visibility to the customer Security Operations (SecOps) team and vital data the tools they use to prevent cyberattacks and fraudulent activity.

How did they do it?

Redditors part of the Wallstreetbets forum creatively sought out stocks that had been beating down during the pandemic. The strategy for retail investors on Wallstreetbets was to buy and hold heavily shorted stocks to pump up its price. How this group of retail investors flew under the radar and influenced other investors to buy into a high-risk plan without breaching any security or SEC protocols is surprising.

Google (Alphabet) has been a publicly traded company since 2004 and has taken nearly two decades to reach 4000%+ in gains. By comparison, Gamestop, the out-of-touch video game retailer, was hovering just a year ago under $3 a share. In nine months, it popped nearly 11,000% to top out around $436 a share.

Gains like this either take years or simply never happen. The big spike allowed retail investors to cash out huge profits.

Why security is important?

The planning and execution of these meme stocks is important. Investing is all about trends, staying ahead of the curve, and to get buy-in to follow through on strategy without being detected or experiencing cyberattacks is impressive. The collective unit of retail investors in the meme rally was a bunch of loyal Reddit users who, likely, had never even met before! They sparked a trade frenzy by simply reading online forums, watching YouTube videos, and believing in the concept of buying and holding. The key to maximize profits was analyzing market data and exiting/selling at the right moment.

Tick-to-trade latency is a crucial metric that measures the time between receiving a price movement in a stock (a “tick”) that could be acted on as an opportunity to execute a buy or sell (a “trade”). The tick-to-trade response to market movement determines the success of (a) trade(s). Market exchanges must operate secure networks at high data rates and the lowest possible latency and jitter to offer the best possible tick-to-trade service. The networks also must have sufficient headroom to avert data loss that can be caused when capacity overruns occur due to bursts/microbursts. A single microburst can cause packets to be dropped and can cause missed trade order placements, missed trade confirmations, and gaps in market data, any of which will cause financial losses when pursuing hedging and other trading strategies.

An example of this was in January, 2021, when AMC and GME spiked nearly 400% at the opening bell, many traders specifically on Robinhood, tried selling their shares, however, they couldn’t log in or the application froze. The likelihood that everyone trying to sell shares all at the same time caused the network to crash. This was crucial because in minutes, the price of these stocks could fall 30-40%, which for some traders, includes losing out on profits in the tens of thousands of dollars.

Conclusion

The GameStop saga in January has since created a craze amongst retail investors looking to cash in on waves of the market. Since then, more influencers have taken up to YouTube to pump up the valuation of AMC, referring to it as the MOASS (mother of all short squeezes) while other meme rallies include Shiba Inu and Dogecoin (in the crypto space).

Though stocks that meme is always different, one thing that is required for these trends to continue is having a strong cybersecurity posture. Whether its packet data loss, crashing networks, too many users trying to buy/sell all at once, or even cybercriminals stealing people’s crypto wallets (this is a whole other topic), network monitoring and cybersecurity is essential for Network Operations (NetOps) to effectively balance performance, cost and maximize the ROI of the infrastructure. Regulatory oversight and compliance are common for financial services. It is equally important to leverage monitoring to reliably capture and store data for record keeping and reporting to confirm fairness so that no end-user has a timing advantage due to faster receipt of market data feed and execution of trades.

Author

Nadeem Zahid

Chief Marketing – Mach 01