In today’s article, we will discuss how investing reform and a push for a tax on stock trades could be motivated by the 2021 GameStop frenzy. The 2021 GameStop Trading frenzy rocked the markets and influenced a movement for reform in a variety of ways. It dominated the news with its extreme pendulum-like ups and downs – taking over the markets for several weeks. Traditional investors were floored by the movement of new investors to switch to “dark trading” or trading that takes place outside of a traditional market. Many investors were lead to ask the question – is the future of trading changing? The answer is likely yes, but perhaps not for the reasons that you might think.
The influx of younger investors to the market from different app-based trading sources (such as Robinhood) and the rise of the influence of unconventional traders on platforms (such as Reddit and other forum sites) have changed the way investing works tremendously. However, whether it is for good or bad remains to be determined. Reddit and other trading sources have made investing so much more accessible – both to a younger audience as well as a market with a smaller amount of disposable capital. Some say that this is a good thing and works to level out the playing field. Others fear that this will cause drastic market inflation from eager and easily impressionable investors – leading to massive shorts and quick crashes. During the GameStop frenzy, Robinhood briefly restricted the trading of key stocks during the boom (such as GameStop and AMC). This coupled with alleged claims of issues of delayed trading in the past caught the attention of government officials, lawmakers, and regulators (such as Rep. Ocasio-Cortez-Cortez and Sen. Ted Cruz) to express concerns over the free market and issues of transparency. Pressures from these influential personalities enticed the SEC to launch an investigation into Robinhood and other like apps. This could cause reform for the markets and make yet another switch for the future of trading and investing.
In addition, the 2021 GameStop frenzy and the attention that it brought to the markets and trading process could likely be the cause for a push for a tax on stock trades. The Democratic party representatives who have already expressed interest in imposing a tax on stock trades seem increasingly motivated to accomplish their goal after witnessing the effects that the GameStop movement had on the markets. With an increasing need for new resources to fund President Biden’s new $ 2 trillion infrastructure plan for the United States – a tax on ever prevalent stock trades seems to be a profitable way to achieve their quotas. A financial transaction tax, or FTT, would raise money through a collection of a percentage of the value of securities trades. Supporters of the tax proclaim that not only would the tax be a good way to increase resources for the U.S. government, it would also help by acting as a pseudo-regulation by influencing a cut in high-frequency trading and excessive speculation through a sort of consequence. Opponents of the tax claim that it is a flawed policy that would hurt investors, push trading overseas, and greatly damage the free market. The dichotomy between supporters and opponents of the tax is especially heated considering that it could potentially be passed without Republican party support due to Democratic Party control over the Senate.
Many experts maintain that the tax on stock trades remains unlikely, however, they do recognize that a push for a tax on stock trades is more of a possibility than it has previously ever been. In addition to the possibility of a federal tax, a chance of a state enacted tax is also being thrown about. Some lawmakers in the state of New York have expressed consideration in raving their own tax on stock trades – which has not been permitted since the early 1980s.
While the Presidential team and White House have made no official movement to pursue a tax on stock trades, it is important to be aware of budding possibilities before they have an effect on investors. We have a responsibility to keep a proactive view of potential trends. At FFR Trading, we pride ourselves on protecting our investors and informing them of all market news and influences that could affect their portfolios. A tax on stock trades is a possibility (albeit how small) because it has been enacted in the past and the SEC already applies a similar fee today. Even if the tax would take a small percentage of investors’ savings, simple mathematics shows us that small percentages can add up and we want our investors to be aware of any possibilities.
We encourage you to keep an eye on the markets and to keep tuning in to our blog, Instagram, Facebook, or Twitter for the latest news from FFR. If you have more questions or would like to hear about how FFR can help with your investment portfolio be sure to reach out to one of our client care specialists by calling us at (800) 883-0524, emailing us at [email protected], or filling out our contact form.
Sources: Alexander Osipovich’s Article via the WallStreet Journal, Matt Egan’s Article via CNN, Joe Light’s Article via Bloomberg