By now, you’ve likely heard about the weirdness involving GameStop and the stock market. You’ve probably heard things like “squeeze” and “short sellers” and “WallStreetBets” too. It’s confusing, especially if you’re not that familiar with stock trading. Let us help break it down for you.
What’s With The Stock Short Sellers?
To begin, we need to explain what short sellers are. These are people that essentially borrow someone’s stock in a company, sell it at the current price, wait for it to go down in price, buy it back, and give the stock back to the original owner. They essentially keep the price difference. So if they borrowed stock, sold it for 10 dollars, waited, then bought it back for 7 dollars, they made 3 dollars. Think that, but on a larger scale.
There are two catches to short selling. The first is that they are required to announce when they are doing this. This means there is a public record of how many stocks were sold with the intention of shorting. The second is that for the process to be profitable, the stock needs to drop in price. The sellers can be issued with a lawsuit if they fail to give the stock back in the end, and if the price goes up, they lose money by buying at a higher price before returning the stock.
Who is WallStreetBets And What Does Reddit Have To Do With This?
WallStreetBets is a subsection of the media congregation site Reddit. Specifically, it is a sub community dedicated to stock trading, but with memes, shenanigans, and overall silly tones to their behavior.
One day, that community noticed that GameStop had a surprisingly large number of short-seller stock records. More than 100% actually. This meant that the short sellers not only borrowed and sold back stock, they did this multiple times, causing them to have “borrowed” more than 114% of the stock that exists for GameStop. With video games often an aspect of online prankster culture, the community had an affinity for it. So, in an effort to make things difficult for the short sellers, they rallied together to all invest in GameStop in an effort to raise the stock price, promising to hold the stock at a high price until the short sellers were forced to buy the stock back at a loss.
And it worked, sort of. The price of GameStop stock rose by more than 400% in less than a week. Now it was making headlines, more people were buying into the stock.
That’s when the insidiousness began.
It turns out that super wealth hedge funds don’t like it when common folk cause them to lose money. These same hedge fund folks were the ones behind all of the short selling stock. They went on to interviews ranting about market volatility and cyberbullying.
Meanwhile, they’re moving behind closed doors, telling media outlets to get the public off of the topic. This caused articles to pop up claiming that GameStop was dead and everyone should focus on silver, or that the hedge fund short sellers have officials sold (despite public records showing that they haven’t).
It went as far as for Robinhood, the most common public stock trading service, to not allow people to buy any more GameStop stock. This, if you didn’t know, is considered illegal as it goes against the right for free trade.
The ultra wealthy are worried about losing money, and are trying their damnedest to bring GameStop stock price back down to minimize their losses.
An ultra wealthy hedge fund is gambling billions of dollars on GameStop stock prices falling. One internet community noticed this and rallied together to buy the stock and raise the price. Now the hedge fund is scrambling what they can to manipulate the market in a way that brings the price down.
We have no sympathies for the hedge fund, to be honest. They make a living on stock market manipulation, but throw a fit as soon as the common people learn how to do it against them, going as far as to try and stop the free trade.
We are not a financial organization, and you shouldn’t take financial advice from us. But we will say this: Don’t use Robinhood to trade anymore, if you can help it.