Concerns Raised by ESMA Aim to Prevent Future Short Squeezes

Concerns Raised by ESMA Aim to Prevent Future Short Squeezes

Recent concerns raised by the European Securities and Markets Authority (ESMA) have increased awareness concerning the trading activity of retail users based entirely on information gathered or speculated from online forum sites or similar sources.

ESMA released this concern almost as an official warning, following the short squeeze controversy of GameStop stocks, which was the product of many retail investors ravishing the global FX community. Mainly, ESMA mentioned the subreddit group responsible for all of this-WallStreetBets.

ESMA wants to focus the attention of traders on the risks involved in following investment advice from social media outlets. The sub-Reddit group is only one example. The internet is filled to the brim with unofficial investment advisors that ultimately aim to profit in some way. The most popular sources of these are, of course, social media websites.
The European Securities and Markets Authority further wanted to point out that retail investors need to have a firm grasp on the concept of volatility, and mainly its risks.
Volatility could be increased by many factors including when stocks are subject to heavy short selling. Price trends can suddenly come to a halt and reverse, quickly exposing retail clients to heavy losses.”
Following the disaster that was the GameStop controversy and the resulting consequences, ESMA and many EU regulators (by country) are now in the midst of analyzing and researching ways through which to best avoid similar cases. Entities are currently on the lookout for protective measures that can be potentially taken to avoid GameStop-Reddit scenes in the future.

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