In An American video game retailer, GameStop is in the news after its stock price surged about 1000 percent all because of some Reddit users.
In two weeks span, a collective of individual traders on Reddit’s r/WallStreetBets community sent GameStop stock to unbelievable heights in an attempt to fight back with hedge funds, which had sold the stock short.
Redditors purchased huge numbers of GameStop stock at low prices. Then, they kept buying more as the prices rose, held it, and are now forcing something known as a ‘short squeeze’ that is driving the price up.
The Reason Explained
The reason behind Reddit traders’ action was centered around shares that have been heavily shorted by other market players which is traditionally an area dominated by hedge funds.
‘Shorting’ is done when the investors sell shares of a stock at a high price in the belief that sometime later the price of that stock will go down. They will then be able to buy back the stock at the lower price to cover their losses making a profit which is the difference between the price they sold at and bought at.
Many giant hedge funds had bet many millions of dollars that GameStop would fail and would lose massive amounts of money.
As A Result
At the beginning of this year, GameStop was trading at $17. By Wednesday afternoon, it was over $340, valuing the unprofitable company at more than $25 billion, reported TOI.
GameStop surged 50 percent in extended trade after Tesla founder Elon Musk tweeted “Gamestonk!!”, along with a link to Reddit’s Wall Street bets stock trading discussion group. ‘Stonks’ is a tongue-in-cheek term for stocks widely used on social media.
Gamestonk!! https://t.co/RZtkDzAewJ
— Elon Musk (@elonmusk) January 26, 2021
However, all the surge in the stock may not be beneficial for gamers since the company has been receiving a lot of negative reviews over the years.
