Sharebrokers are focussing on educating clients in the aftermath of the GameStop incident, which saw the price of shares in the United States-based bricks and mortar retailer skyrocket at the expense of institutional investors.
Photo: AFP / Getty Images
A group of online retail traders banded together to drive up the value of GameStop and other underperforming stocks, as institutional investors looked to fill short positions.
Institutional investors short-sell stocks because they expect the price of the assets to fall, not rise.
A group of retail investors, using popular apps, saw that as an opportunity to drive up the price, forcing the larger investors to fill their short positions at much higher prices than expected, resulting in large losses.
The head of direct wealth at the brokerage firm, Jarden, Fiona Mackenzie said investors needed to understand the risks involved in taking part in this type of stock market activity, which was best described as speculative.
"The volatility we're currently seeing with GameStop's share price is reminiscent of what we saw during the dot-com bubble," she said, adding the growth of online retail investing had massively amplified speculative investment.
"While it's fantastic that shares are becoming more accessible, it's also vital that investors get comprehensive, high-quality information before jumping into investing.
"A handy way to think of it is like buying a house - you'd get all the necessary checks done before putting the money down, and the same goes for investing in shares."
The general manager of the New Zealand share app, Hatch, Kristen Lunman said the GameStop investment behaviour wasn't typical of the activity normally seen by its customers, with some 99 percent of investors looking for long-term investments.
"So what I think is happening, this is actually an activist movement," Lunman said, adding the apps had made it easy for small investors to actively trade shares.
"These apps have democratised access and you will have a very small percentage of people who opt to exhibit behaviours like this, partly potentially to benefit from volatility of a given share, but also to join, you know, activist movements like this, which may become more prevalent in the future."
Sharesies co-founder Leighton Roberts said the app was also focusing on educating customers, but was not blocking its users from trading shares in GameStop or any others.
"There's a lot of headlines around what's happening with the sheer volume - unprecedented volume of shares - so our app is actually holding up fine," he said delays were a result of the interconnection with the US markets, which was a bit slow, particularly at busy times.
Meanwhile, the Financial Markets Authority said it had been following the GameStop case with interest.
"We have welcomed the new wave of retail investors to the capital markets. However, we have expressed our concerns about investors potentially spreading misinformation on social forums and following the herd into high-risk investments.
"Investors need to think carefully about their capacity for loss when considering high-risk investments, such as shares in an individual company, especially in volatile markets."
In any case, the FMA said it would not speculate on whether there was market manipulation involved in the GameStop activity.
It said it was up to RegCo, formerly as NZX Regulation, to detect and take action against any instances of market manipulation.
RegCo did not respond to RNZ's request for comment.