Earnings from big tech names, the Federal Reserve’s monetary policy meeting, Covid stimulus aid, economic data and vaccines rollout were supposed to be the big factors moving markets the past week. Instead, it was the battle between retail investors and hedge funds that burst out of nowhere that took control of markets, and now everyone is wondering how this could end up.

Following successful attacks against short-sellers on game retailer GameStop and other heavily shorted stocks like AMC, Nokia, Blackberry and Bed Bath & Beyond, retail traders’ next target has become silver. The precious metal rose to $28.99, a six month high, in early Asia trade and is up 6% at the time of writing.

iShare Silver Trust, the world’s largest silver-backed exchange-traded fund, recorded a one-day inflow of almost $1 billion on Friday and is likely to see more inflows today as more traders become familiar with the trade. Miners of silver were the biggest beneficiaries of the latest Reddit’s users’ recommendation, who are betting this time against large banks. However, the targeting of Wall Street may be misplaced as most big banks hold short positions in the silver futures markets to hedge their physical holdings. If their short positions lose value, their physical holdings gain, hence from a price perspective they are neutral.

Influencing the price of silver will not be as easy as a single small or medium-sized single equity. Silver’s market cap is in the range of $1.4 trillion to $1.6 trillion as opposed to GameStop’s $1.5 billion before becoming the target of retail investors and a large proportion of the market is off-exchange. However, it will be interesting to see the small players’ power and how much further they can push prices.

There is no doubt the power of collective retail investors has taken the market by surprise as this is a phenomenon we are experiencing for the first time. In the short-term, they have changed the rules of the game and caused a lot of pain to hedge funds who were obliged to raise cash, forcibly sell other long holdings and close out short positions at hefty losses to meet margin requirements.

Retail traders who are just following the herd and join the party late may accumulate huge losses and need to be more rational in their decisions. The new phenomenon may keep going for some time, but the longer it stays the more mispricing will occur in assets and possibly lead to huge damage on the broader market. The S&P 500 experienced its worst week since October despite earnings coming in well above expectations. Given that risk taking and leverage have reached unprecedented levels, any disorderly deleveraging event could trigger steep selloffs in US and global equities.