The GameStop week, r/Wallstreetbets: Everything you need to know.

 


 The GameStop week: Everything you need to know.

 

 What happened with GameStop? Who are r/wallstreetbets?

 

 Recently, the Gamestop shares were in the news. People were tweeting about it or posting about it. 

 Each and everyone is trying to understand what happened in the stock market with regard to GameStop. 

 


 Let’s see. 

 

 What is GameStop?

 

 GameStop based in Grapevine, Texas sells video games and consoles worldwide through their stores or through their website. If you are also a game lover, you should definitely visit their website, it’s www.gamestop.com you can also find the best deals there for gaming consoles, collectibles, video games, and VR equipment. 
 
 Now due to pandemic or other reasons many people were buying games and stuff online instead of offline stores and GameStop were struggling to make profits. Hence, their stock prices were going down a lot, few ups but mostly down.

The hedge fund investors were very well aware of this and they decided to make a huge amount of profit by short selling GameStop stocks. 
 

 What is short selling then? 

 

 Short selling is a method where you borrow stocks from your broker for a particular time frame (mostly for 48 hours) and you sell them at the stock market for a certain price. 

  

 Then you, watch and wait, for the price dip in the particular stock so that you can buy it later (at a lower price) and then you give it to your broker and you keep the rest of the money with you as your profit. 

 This is called short selling or taking a short position on the stock. 

 

 Let’s understand this thing by an example. 

 

 Suppose you borrowed some stocks of Tesla company from your broker at 10 dollars and you have been given a time frame of 48 hours to return the Tesla stock back. 

 You have a hinge that the price of Tesla stock would go down in some hours. 

 
You wait and the price goes down by 4 dollars. 

 Then you buy the Tesla stock at 4 dollars and you return it to the broker. 

 
Since you have bought it for 4 dollars, you make a profit of 6 dollars. 

 

 But there’s also a downside to this. If the price of your stock goes up you have to buy the same stock at a higher price and then return to the broker, which ultimately means LOSS. The higher the price goes the more loss you will bear.

 

 In the case of GameStop, the hedge fund investors bought GameStop stocks at a low price in a huge amount. Around June 2020, the price of GameStop stock was around 4 dollars. 

 

 Now at Reddit (the social media giant known for sharing memes), there is a sub-community known as r/Wallstreetbets ( a community for retail investors, traders) got the news that hedge fund investors are short selling stocks of GameStop.

 

 The fun part starts from here, the r/Wallstreetbets community requested every member to buy shares of GameStop. People started buying the GameStop shares at much higher volumes which led to a huge increase in the price of the shares. 

 

 Also, the short sellers were also buying the stocks at this time to bear as little loss as possible. This led Gamestop to a soaring high of 469 dollars per share. 

 

 From 4 dollars per share to 469 dollars. GameStop stock went Up up to 11,606% per share after the short squeeze( then it went down a little bit but 469 was the record high for GameStop).

 

 The thing is there is NO upper limit while shorting a stock, I repeat NO UPPER LIMIT, it could go up to 5 dollars to 1000 dollars in these type of cases. 

 

 The hedge fund investors were completely short squeezed by the Redditors, the situation led to bailing them out by other investors in the market. The short investors at GameStop lost a huge amount of 1.6 billion dollars and that’s way too much money. 

 

 The actual story of this whole thing goes way back in July 2020, when a YouTube channel known as Roaring kitty analyzed short interest on GameStop is above 100% he goes telling that he has found a way to earn money. He said GameStop is actually somewhat in a better position than predicted by the people. 

 

 This was the correct time to earn money by some Redditors as the youngsters had time and savings due to lockdown. 

 

 Most of this was possible by a famous trading app known as Robinhood. The interface of Robinhood is pretty smooth and user friendly. Trading on Robinhood seems like playing a game and getting rewards in the game. They are no specific commission charges for trading. Robinhood trading app is ideal for new traders. 

 

 We all know that the stock market is dominated by huge hedgefund investors but the app Robinhood and the Reddit community have shown the world that what an online mob is capable of. 

 

 The soaring high price of GameStop was also due to a tweet from Elon Reeve Musk,

 in which he tweeted GameStonk, and whoa! the prices went up!

 

 The hedge fund which is most screwed than other hedge fund investors is Melvin Capital, they had bought a tonne of GameStop stocks and now they have to pay them back. They are selling their long-term positions to cover up but luckily they have investor friends which have helped them to bail out and keep them afloat in the stock market. 

 Many people are saying that Redditors have done this for a political statement but I doubt that this is the case as these people are only after earning money and not after politics. So they manipulated the market, earned the profit, and got away with it. 

 

 People are blaming that Robinhood’s UI is also responsible for this market manipulation. They are also saying that Robinhood has made the trading app so much easy to use that it almost looks like a game to trade, which can be addictive to youngsters.

But I believe these types of arguments are totally out of the context. Every app developer or company wants its app to have the best user interface, best features, etc., etc. and that’s normal. App interfaces are not mobile games that people would get addicted to, people are addicted to trading so they will do the trading no matter what, by Robinhood or some other trading app. 

 

 After this Robinhood had frozen its trading service for few hours. This is a bad thing done by a trading app. People started giving negative reviews on Google play store about Robinhood. 

 

 The actual thing is trading for many years is dominated by the huge institutional investors, for the retail investors it was very difficult to make it big in a short span of time. But due to online communities like Reddit and trading apps like Robinhood have made trading much easier to learn and it’s booming like an interesting past-time hobby. 

 

 The power of the internet is huge. 

 

 What do you think about this issue? What's your take? Should there be regulations in the stock market more or on the online communities? 

 

 Or do you agree what happened was good or normal? 

 

 Leave your views in the comment section and let us know. 

 
Thank you and keep investing. 

 


 

 

 

 

 

 

 

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1 Comments

  1. nice information on GameStop. This post made me clear about the incident.

    ReplyDelete