The humour, irony and self-deprecation of r/Wallstreetbets is the engine that powered the initial purchase of GameStop shares. Hi Shelley, you and more than $6bn of lost hedge fund money are asking the same question. They borrow shares in the company and sell them, with a promise to buy them back at a later date.
Why are BlackBerry, AMC Entertainment and Bed Bath & Beyond up, too?
It’s not just GameStop that’s surging but a whole group of companies, and with most of them there’s a common thread — they’ve been heavily shorted by big Wall Street firms. That makes their shares prone to spike on any good news, as investors who have shorted the stocks are forced to cover their positions by buying back the shares. GameStop’s low share price, thanks to the shorters, made it relatively easy for a large number of people to buy in with little money. Some bought in believing in the stock, others because they thought it was funny – GameStop was easily memed thanks to many Reddit users’ fond memories of the chain. WallStreetBets — whose meme-obsessed, profanity-spewing members call themselves “degenerates” — erupted with violent threats against Left that scared him enough to report them to the FBI.
A short squeeze happens when a stock price that was expected to fall, instead rises. Traders who have shorted the stock now need to buy the stock to fulfil their obligations under the short – which drives the price up even further. Essentially, retail investors have found a way to use their collective buying power to exploit a weakness in short selling, and both make money and a point in the process.
Individual investors — particularly on the Reddit chat forum “WallStreetBets” — began buying GameStop shares and encouraging others to do so. That caught the eye of Andrew Left of Citron Research, a short-selling guru who recommended in a Jan. 21 report that Wall Streeters bet against the stock. By Friday, GameStop had a short interest of 102 percent of its outstanding shares, making it one of the most shorted stocks on the market. But this does look set to change the game of short selling forever, and that will have huge ripple effects. The power of retail traders now seems higher than ever, and social media has been shown to be a remarkably effective method of stock market hype. GameStop, before the frenzy, was one of the most shorted shares on the US market, as a range of funds bet that it would slump during the pandemic.
If you’re sure the company will lose value, you’d make a profit when you buy them back and the price has fallen. If you’re not on Reddit, it’s a social media site – scalping forex guide kind of like Twitter or Facebook. On Jan. 11, GameStop said it would add three new directors to its board.
Why GameStop is surging and what it means for the stock market
The same effect is already happening to other stocks, such as AMC, BlackBerry and Nokia. Analyst Neil Wilson says some of the traders had a “peculiar vigilante morality”. He also linked to the Wall Street bets forum, where he’s lovingly referred to as Papa Musk.
This exact scenario also can’t apply to other stocks that don’t have a significant percentage of short sellers, or that aren’t down in the dumps. For example, Reddit could not coordinate the same thing on Apple shares. When Elon Musk tweeted “Gamestonks” and linked to the r/Wallstreetbets forum, the share price jumped about 150% in after-hours trade (although there are suggestions the timing of the rise was a coincidence).
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- For others, it is a form of wealth transfer – the only losers in this trade are large hedge funds, and the winners are lower-income internet users, some of whom are only putting up a few thousand dollars.
- Earlier this week, AMC’s stock spiked after the company announced it would avoid bankruptcy with new financing.
- But huge numbers of people in the wallstreetbets Reddit forum swapped tips and bought shares in GameStop.
- They borrow shares in the company and sell them, with a promise to buy them back at a later date.
Other stocks that are surging include tech firms like Blackberry, Plug Power and Nio, a Chinese electric-car maker. Bed Bath & Beyond was up 27 percent on Wednesday, while shares of the Fossil and Express chains were both up 93 percent. GameStop is among a handful of previously unloved companies whose shares are spiking in recent weeks.
But huge numbers of people in the wallstreetbets Reddit forum swapped tips and bought shares in GameStop. Nevertheless, most Wall Street experts say it’s only a matter of when, not if, these stocks return to earth. That’s because their stock prices are completely out of whack with the health of their businesses. In addition to the above-mentioned short interest that makes these stocks prone to spike on good news, individual investors in recent weeks have been using options that are further enhancing the effect. Particularly popular on WallStreetBets are “call” options, which enable investors to buy stocks at a predetermined price in the future.
People who buy and sell stocks often axi forex broker bet on which companies won’t do well in the future. You’ve probably stared blankly at your WhatsApp chat as the words “GameStop”, “Reddit” and “stock market” get thrown around the way “pub” and “meet at 8” used to. Asked this week whether to keep buying GameStop stock at such lofty prices, a Reddit user responded, “You’re good until Friday.” That could indicate that the WallStreetBets crowd may have some sort of plan in place. But GameStop was the perfect target, and many of these other stocks are not as shorted nor as popular. Sounds like this whole thing proves that the stock market is nothing but a fever dream.
The demand raised its share price massively, which nobody saw coming, and everyone who had banked How to buy crypto under 18 on it dropping in value had to buy their shares back. If your bet was wrong and the price actually rises instead of falling, you’d lose money. This is a massively simplified explanation of something called shorting, or short selling – words you might’ve seen cropping up in your feeds in the last few days.