If you have any knowledge about forex, stock exchange or betting exchange, you may have wondered one day if it is possible for a group of people to coordinate with each other to trade heavily on a specific stock to create a massive squeeze on it and raise its price madly to gain quick profits without breaking any law! Indeed, this is exactly what happened over the past year, as an army of retail traders on Reddit agreed with each other to push GameStop's stock’s price to a stratospheric level which has scored about 1700%!
Although Wall Street saw many short-sellers throughout its history, the internet has surpassed them all! Perhaps GameStop stock astronomical rise and the social media impact will be embodied in a Hollywood movie soon on Wolf of the Wall Street style because what happened was more fantasy than reality!
In this article, we will learn about the reasons for the sudden rise of the GameStop stock and how a group of anonymous young retailers managed to exceed the high standards of the American Stock Exchange and squeeze the short positions of hedge funds. Although the “r/wallstreetbets” group on Reddit hasn't given any valuable guidance in a while, the manager of ArabCasinoHEX can give you top tips on how to make money online from games, betting, and prediction, so you can make winnings of $500 or more from a bet as low as $5, like GameStop lucky shareholders.
GameStop is a video game retailer fixture in suburban malls over the USA. It was a normal company whose financial performance was modest during the past years, and its sales were supposed to decline during the past months as a result of the general closure due to the precautionary measures to confront the Coronavirus. Consequently, the company's stock will fall, considering that its performance during the six months was somewhat bad, so hedge funds started to buy the shares of GamStop heavily to take advantage of its falling price.
To simplify the explanation, assume that the number of GameStop shares is about 69 million, but 71 million were sold before! Now you may be surprised; How does the company manage to sell an additional 3 million shares? Is it possible to sell shares that do not exist? The short answer is: “Yes”. After hedge funds buy a stock, they can “lend” it to other people or other companies, then the buyer lends it again to other parties, and so forth. This structure, which hedge funds create, is based on shares that have been sold many times, and their value is calculated more than once, meaning that shares that do not already exist can be sold!
There are 30 million GameStop real shares that total yet to be sold, these shares that Reddit's game revolves around as they control GameStop's share price. Hedge funds are trying to acquire these shares but at a slow pace. If they buy the remaining amount on one go they will create a huge demand on the stock and draw the attention of speculators. In other terms, hedge funds want to eat the remaining piece of the cake slowly and without anybody noticing. However, Reddit traders were watching them!
In the midst of these battles, some positive things, outside the stock market, happened to GameStop company and boosted the stock even more. The first one was the release of the Playstation 5 and Xbox consoles. The second event was the purchase by the owners of Chew Company for 9% of the company’s shares and after that, they raised their share to 13%, which is a very positive and supportive thing for the company, while the third positive point comes from Microsoft when it announced its partnership with GameStop.
These things caused a qualitative leap to GameStop and raised the company's stock more and more, which was something that hedge funds did not want at all! As they aim to buy the company's shares at their low prices. In this case, the hedge funds were supposed to sell their shares in order to reduce the value of the stock and be able to buy more shares at a lower price or to make profits that would help them buy another company's shares. But they were surprised by another completely different scenario that the “r/wallstreetbets” implemented!
r/wallstreetbets is a Reddit group that contains 2 million participants who exchange views on the stock market and share perspectives about trading strategies.
Members of this forum have noticed what is happening on GameStop stock and that more shares are being sold than the company owns, so they posted what is happening about GameStop stock and encouraged each other to buy GameStop stock at its current price; Do you imagine sharing of such idea on a group of 2 million-member?! What if everyone in the 2 million members only told 2 of their friends?! At this time, the share price was not more than 4 or 5 dollars, then it has risen by 100 times!
Indeed, the members of r/wallstreetbets were convinced by this idea and began to buy the stock, which rose by 100 times! Thanks to these quick fortunes, some students posted videos on the same group telling that they have paid off their college loans, some others bought their dream homes, luxury cars ... Dreams come true, because of a post on Reddit!
This scenario was not in the mind of hedge funds at all. For them, what happened on Reddit was a catastrophe as they have sold shares that they even don't own! So, hedge funds were forced to buy more shares at the new high price to get rid of the stock's bubble, which is why GameStop's share price has risen to over $500 at its highest levels. What started like as a joke on Reddit, has caused losses to hedge funds exceeding $70 billion in just a few days!
No one knows! However, it is wise to avoid this stock or invest in it with limited amounts, because its volatility is very high; In other words, the stock rise/fall is not based on tangible financial basses, as GameStop did not win an exclusive offer to sell a specific game or device, nor did it expand into new markets. And all that happened was a game played by a group of online adventurers who spread this idea to make the stock go up to the maximum and thus make profits.