- Day traders and Wall Street pros continue to battle over GameStop share price
- GamesStop is an ailing company that proffesional investors had bet billions on its shares falling.
- Buying by amatuer investors coordinated over Reddit such as via /r/WallStreetBets and other social media has pushed up the shares, shocking proffesional investors and putting Hedge Funds into panic mode.
- The coordination took off big time enabling GameStop’s share price to rise by unprecedented amounts, with it being up by as much as 700% since last week, causing professional investors to lose large sums of money and Hedge Funds to face risk of bankruptcies.
- Larger investors also joined in to further compound losses.
- Regulators have begun monitoring the trading over fears of illegal market manipulation. Some banks and stock market services have limited certain trading in relation.
- Many amatuer investors have said they are doing it to beat Wall Street at their own game.
Short Selling/Shorting
To understand what’s going on is to understand Short Selling. It is where big investment companies, such as hedge funds, aim to make money via betting that a company share price will fall.
This involves hedge funds borrowing shares in a company for a fee from other investors, and then selling them on the market for a set price, so in this example let’s say they sell for $10 each, they will then wait for it to drop to $5, and then buy them back, these shares, which were borrowed by the hedge funds, are then returned to the original owner, with the hedge fund making a profit. This sort of activity can last for weeks and months and generate millions in profit.
Since GameStop is currently seen as a failing company by professional investors, it became one of the most shorted stocks in Wall Street for that reason, as many as 30% of its shares are thought to be borrowed right now by hedge funds currently getting hammered by unprecedented activity.
This unforseen activity has been kicked off by small-time amatuer investors, basically your everyday Joe looking to make a buck and get on in life, the kind of people who scoff at the rich and the greedy practices used by hedge funds – operated by the rich. It all begun on a Reddit subreddit called /r/wallstreetbets where a small idea to pour money into buying GameStop stocks to drive up the share price gained huge traction, leading to it actually happening. This has created some big ouchies for the hedge funds holding borrowed shares that have now gone up in price, and of which at some point they will need to buy back so they can be returned. And so panic ensues, they buy them back and this only makes things worse by driving up the share price even more – swathes of value are wiped out.
And thus these professional investors and hedge funds got absolutely battered at their own game, many are even trying to hold to wait for the price to drop at some point, but you can only borrow something for so long, it’s a very big risk to wait longer. So really now it’s a game of chicken, who pulls out first. Larger investors and others on social media such as Elon Musk who eventually realized what was going on also joined in with the fun, driving up the share price even further.
Unfortunately these hedge funds are owned by the rich and influential and as such they have begun crying about market manipulation of which they themselves perform all the time, a number of banks and stock market services have stopped people from buying more shares on GameStop and even other companies now being used to try and further wreck hedge funds. This in itself is also market manipulation if you think about it, an attempt to try and make GameStop and other stocks crash down again so the Hedge Funds can recuperate better and the rich guys perhaps won’t face a big an ouchie.
WallStreetBets has also gone into private mode on Reddit meaning those not already apart of it cannot see it unless they are invited, their handle on discord was also banned under mysterious timing, it was one of the largest servers on discord. It just goes to show you the lengths that powerful forces will go when the wrong people manipulate the market.
As of now it’s still ongoing and probably far from over, so it will be interesting to see the continuing effects play out.
At the end of it all though the damage is already done to the Hedge Funds, especially Melvin Capital. Bankruptices are certainly a very real possibility for some. This time the small guys handed the big guys a gulp of their own medicine.
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