Thinkorswim Co-Founder: Meme stock craze is nothing like day trading in the dot-com bubble of the late 90s
Market conditions and technology in the mania for the current meme stock AMC Entertainment are very different from day trading during the dot-com bubble of the late 1990s, online brokerage pioneer and former options trader Tom Sosnoff told CNBC on Friday.
“There is no comparison between 1999-2000 day traders and that first transition to online trading as what we see today,” said Sosnoff, who co-founded Thinkorswim in 1999.
“It’s completely different” from the vastly superior trading technology offered by the online brokerage industry these days to commission-free trading, he said on Squawk Box. “Remember, you were basically hacked alive back then with the bid-ask differential and commissions and fees too.”
Retail investors can now better compete with the pros on trading speed while getting wafer-thin bid-ask spreads, Sosnoff said. Bid-ask spreads are the difference between what buyers are willing to pay and what sellers ask for securities.
In 2011, Sosnoff started the online financial network schmackhafttrade. Six years later, the online brokerage schmackhaftworks was founded.
“It’s different from 1999. It’s different in 2008. The number of players today and the amount of capital today are enormous compared to what we’ve seen,” when it was mostly professionals involved in large-scale speculation Sosnoff said with reference to the recent Reddit-fueled rise in retailers.
“What you see is that a whole generation is committed. So instead of waiting until they’re 50 or 60 and find out what the markets are about, do it when they’re 22 or 23. This is a generation change, “he added.
That “generational move” is doing great this week in the wild ride for AMC investors, who roughly doubled its shares on Wednesday, lost nearly 18% on Thursday, and fluctuated between gains and losses on Friday.
“It’s definitely the leading retail investor,” Sosnoff said, as other meme stocks like Bed Bath & Beyond, BlackBerry and GameStop also saw high volatility this week. Sosnoff said he is not worried that a generation of investors could leave the market entirely if meme stock trading ends badly, which happened when the dot-com bubble burst in 2000.
“People look for speculation. Speculation turns them on. I think the opportunity to partake in something speculative that you think you own is a really good thing. It’s good for engagement. It’s good for the markets, it’s good for the future of finances, “he said.
At the same time, Sosnoff said AMC’s decision to sell shares with a cash value of around $ 800 million and an offer of investor support to sell an additional 25 million shares were smart moves by CEO Adam Aron.
“If you run AMC and have been given this essentially free horse and have the opportunity to own more stock, then you must do it. It is in the best interests of your company and, ultimately, the best interests of your long-term shareholders and shareholders everything else, “he said.” That’s just taking opportunities. That’s what good CEOs do. “
Sosnoff contributed more than 20 years to the online brokerage business on the Chicago Board Options Exchange. He said he was a trader at heart.
“In fact, I’m empty right now,” said Sosnoff, meaning that he is betting against the entire stock market. “I like strategies where you are essentially short in the market and a certain premium is empty. I like to sell volatility. So for me personally, I prefer to keep the market empty and keep a little short volatility. It’s just a strategy. “
Disclosure: Thinkorswim was sold to TD Ameritrade in 2009. TD Ameritrade, in turn, merged with Charles Schwab last year.
Correction: Thinkorswim was founded in 1999. In an earlier version, the year was incorrectly specified.