Retail investors wage battle against Wall Street

​An wave of amateur at-home traders, equipped with free trading platforms, spare cash, and boredom, has launched a battle against Wall Street that has shaken up markets and left seasoned hedge funds reeling.

Wall Street has been watching GameStop, a games retailer, in awe as a band of retail investors managed to push the stock up 1,500% in two weeks, squeezing out short selling hedge funds.

The impact is now spreading to other stocks and tripping up sophisticated hedge funds that take pride in their superior skills at navigating markets. Alarm bells are ringing among investors and former Wall Street regulators who see worrying parallels to the pump-and-dump schemes that proliferated in the dotcom era.

"The people who get hurt on these things … are the people who buy at pumped-up prices thinking they're on a rocket ship ride upward and in fact that rocket ship is going to crash," said Steve Cutler, a partner at Simpson Thacher and former enforcement chief of the Securities and Exchange Commission.

The SEC declined to comment. Reddit said it prohibited the facilitation of "illegal transactions" and that it would "review and co-operate with valid law enforcement investigations or actions as needed".

Options are central to retail investors' success in moving markets, with the use of the instruments that let traders bet on the direction of stock prices being amplified by no-commission websites such as Robinhood. In aggregate, this has forced big brokers to buy stocks to hedge their own risks, helping supercharge the influence of day traders who typically have much less financial firepower than their established Wall Street rivals.

Analysts across Wall Street updated institutional clients including pension funds and hedge funds on Monday with lists of stocks they believed could face the same storm as GameStop and BlackBerry.