ASIC has urged Australia's flood of first-time stock traders to do their research, saying the GameStop saga 'inflated people’s appetite for risk'

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  • The Australian Securities and Investments Commission (ASIC) has explicitly warned first-time stock traders to be wary of investment advice gleaned on forums like Reddit, Facebook, and LinkedIn.
  • In a new statement, ASIC said it held concerns for new investors with an “inflated” appetite for risk following the GameStop saga.
  • Research suggests some 435,000 Australians placed their first trade in the 2020 calendar year.
  • Visit Business Insider Australia’s homepage for more stories.

Australia’s financial sector watchdog has explicitly warned first-time traders to beware of investment advice gleaned from forums like Reddit, after new retail investors flooded the local market in 2020.

In a Tuesday statement, the Australian Securities and Investments Commission (ASIC) advised would-be traders to learn stock trading fundamentals before rushing into the next GameStop-style market maelstrom.

“The GameStop incident in the US, coupled with consistently low interest rates and the ongoing hunt for yield in today’s market, have inflated people’s appetite for risk,” said Greg Yanco, ASIC’s Executive Director, Markets.

“Everyone is entitled to take risks. However, we advise first-time investors to focus on long-term goals and not make rash decisions based on a fear of missing out on market falls or gains.”

The statement makes clear ASIC’s position on the GameStop saga, which saw predominantly US-based retail traders attempt a coordinated short squeeze on the NYSE-listed stock in January.

Thanks to traders who banded together on Reddit forum r/WallStreetBets, the price of GameStop stock shot from roughly $22 a share at the start of January to nearly $450 a share.

The price soon collapsed, and despite the stock’s wavering return to elevated values, ASIC has warned new traders not to trust every online forum promising such extravagant returns.

“We also recommend learning about trading before you start or getting advice from someone you trust,” Yanco said.

435,000 traders made their first trade in 2020

The ASIC statement builds on a new report from Investment Trends, which states that of Australia’s 1.25 million active traders, a remarkable 435,000 placed their first trade over the 2020 calendar year.

Those findings echo an earlier statement from CommSec, which claimed 230,000 traders signed up to the platform in just six months — and that an astonishing 10% of all trades over that time period were conducted by first-timers.

Rock-bottom interest rates, extreme economic volatility, government stimulus payments, and newfound time at home led curious Australians to enter the market in 2020, experts say.

ASIC is keenly aware many of those traders may have turned to social media, including sites like Reddit, during their first forays into the market.

“Information and advice on social media forums such as Reddit, Facebook and LinkedIn may be conflicted,” ASIC said, adding that traders should be wary of unlicensed advice, misinformation, and outright scams.

GameStop-style surge “unlikely” in Australia, ASIC says

Notably, ASIC explicitly downplayed the likelihood of a GameStop-style short squeeze being executed in Australia.

Stocks listed on the ASX are rarely short-sold to the extent GameStop was, ASIC said, while existing regulations against ‘naked’ short selling would likely prevent similar events in the Australian market.

In addition, options trading — a pivotal weapon in the r/WallStreetBets arsenal — is limited in Australia, while ASIC also holds the power to order trading halts while it investigates the cause of any gargantuan price hikes.

Differences in Australia’s online trading scene may also play a factor.

The moderators of r/ASX_Bets, the Australian equivalent of r/WallStreetBets, say they will crack down on subscribers using the forum to mobilise the next pump-and-dump scheme disguised as a GameStop-style ‘short squeeze.’

Regardless, the statement proves r/WallStreetBets and r/ASX_Bets are significant factors in the new retail trading market — and that regulators take memes about moon-shot profits more seriously than some might expect.

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