For years, Wall Avenue investors have been confident that video match retailer GameStop would fail. The enterprise was not altering properly as the globe moved to online sport shopping for, they’d say. And the pandemic appeared to, also. Wall Street was so guaranteed GameStop would fail that traders created it one particular of the on the marketplace. Above the previous few months while, a bunch of Reddit users have been buying up shares, pushing up GameStop’s worth and undermining Wall Street’s significant bets. At to start with, these discussion board traders purchased for the reason that they considered the organization was greater off than the Wall Street doubters imagined. Then, as GameStop benefit soared, Wall Street’s undesirable bets began to price tag investors billions of dollars.
Now the Reddit people want the price to increase even much more, as they wage an epic battle towards Wall Road.
At just one point, the Reddit people from the forum r/WallStreetBets despatched the stock up additional than 14,300% (you read through that ideal),. They have spread their technique to struggling film chain AMC, and tech enterprise BlackBerry, as well. In their wake, these online current market players have upended Wall Avenue. It is not just large-time traders dropping billions of dollars nevertheless. There are , and (like calling shares “stonks”).
It is a insane story, finish with cameos by Tesla CEO Elon Musk and CNBC economical commentator and previous hedge fund supervisor Jim Cramer. There is certainly even Michael Burry, one particular of the topics of the e-book and motion picture, who comes about to be a notable trader in GameStop.
Even Silicon Valley found a way to get in the middle of this mess. It can be wild.
Despite the move being,” “market manipulation” and “mass psychosis,” GameStop’s stock has become the theater for a war between Wall Street and internet traders. . The questions are when, and who will be on the losing end when it does.
“We’re seeing a phenomenon that I have never seen,” Jim Cramer, a Wall Street commentator on CNBC and a former hedge fund manager, said during a segment as GameStock’s stock began rocketing up. And GameStop could be just the start. “It’s insane.”
It all started in late January, when posters on the Reddit stock trading chat community r/WallStreetBets pushed up shares in the struggling game retailer. With much of Wall Street betting against GameStop’s success, r/WallStreetBets investors believed they could force a market rally by where there had been little before.
As a result, GameStop stock jumped more than 822%, from $17.25 per share at the beginning of the year to a high of $159.18 on Jan. 25. The next day, it dropped by nearly half, only to rise back up. And then Elon Musk tweeted about it to his 43 million followers (using), and the price jumped 40%.
Later that week, the stock jumped even higher, to $483 per share, before halving again. Amid all the chaos, the stock marketmore than a dozen times some days because share price moves were wildly swinging by large amounts. On Monday, Feb. 1, the stock price fell more than 30% to $225.
It’s not just GameStop either. Reddit traders set their eyes on BlackBerry too, attempting to pull the same trick against Wall Street’s negative bets. So far, they’ve pushed shares up more than double from $6.58 per share, where they started at the beginning of the year, though its price has swung up and down as well..
There’s also AMC Theaters, which saw its business crater as movie releases were pushed back and people stayed at home. But Reddit users think Wall Street’s being overly pessimistic about that one too, leading them to spawn the hashtag #SaveAMC on Twitter. Its stock jumped from $2.01 per share at the beginning of the year to $19.90 on Jan. 27, before halving the next day.
Some trading companies such as Robinhood, TD Ameritrade and WeBull responded to the fluctuations byand other fast-moving stocks during the chaos.
, leading US Reps. Rashida Tlaib and Alexandria Ocasio-Cortez, as well as Sen. Ted Cruz, to . Some people had already raised concerns about Robinhood before, . Now it’s being accused of outright market manipulation, including through at least one class action lawsuit filed already. Robinhood, for its part, said market rules effectively forced it to put those restrictions in place.
It’s a lot to take in. So, here’s what you really need to know about GameStop, AMC and Wall Street.
How’d this happen?
Effectively, the r/WallStreetBets crowd realized Wall Street made a huge mistake. People known as short sellers who were betting GameStop stock would fall had been too aggressive.
The r/WallStreetBets crowd understood that if they could create artificial demand for GameStop shares with their own money, they could force Wall Street to recalibrate its bets, pushing prices even higher. And some investors who couldn’t even back up their bets against GameStop, would have to pay even more.
As of Jan. 27, there were 3.8 million members of the r/WallStreetBets community, though it’s nearly impossible to determine how many people are involved in the GameStop, AMC and BlackBerry schemes.
What we do know is that all this activity appears to have created a “short squeeze,” where the short sellers betting against GameStop are being forced to buy more GameStop stock to cover their losses. That pushed the price up even more, which forces more short sellers to cover their losses, which pushes the price up even more. Some of the Reddit crowd believe that GameStop stock could reach into the thousands of dollars just because of this mechanism.
And that’s why we’re suddenly seeing GameStop’s value jump.
How does this short selling work?
When people buy a stock normally, they’re betting it’ll rise or share enough profits that they’ll make more money than they put in.
Short sellers, or “shorts,” do the opposite. Shorts trade with borrowed shares and sell them, with hopes they can make money if the stock falls in the future.
Imagine Ian Corp. is a public company, and its shares are worth $10. A “short” would borrow shares of Ian Corp. and sell them for $10. Their bet is that Ian Corp. stock will actually drop below that — maybe to $4. If it does, then, they can buy the shares at $4 and pocket the other $6.
If Ian Corp. stock jumps to $25, then the lender who made this bet possible may push the short to cover their bet. That would mean the short effectively has to buy the shares at the new, higher price.
When a short is right, betting against a company, they can make a lot of money. But if they’re wrong, they can lose a lot more money too.
There are other options and tools to bet against a company’s future as well.
How much money did the GameStop shorts lose?
The losses appear to be tremendous. As of Jan. 27, shorts seemed to have lost $5 billion betting against GameStop this year, according to Investopedia. About $1.6 billion, or about half, of those losses happened on Friday, Jan. 29 when the stock jumped 51%.
It’s also worth noting that GameStop began the year as one of the most shorted companies on the market.
That seems like a lot of money
It is, but what’s perhaps an even bigger indication of how dramatic these moves were, stock markets temporarily halted share trading for AMC, GameStop and other fast moving shares dozens of times since the drama began.
These wild swings won’t continue forever, will they?
Part of what’s driven this behavior is the popularity of retail investing, or when traders who aren’t Wall Street professionals buy and sell stocks. Stock trading apps, often with no fees, have made it easy for people to jump into the market. And social media has helped people to rally together, egging one another on to buy more and more of a stock.
“GameStop’s rally is one in a series of eye-catching market moves to stir concerns among fund managers, some of whom say trading by individual investors is pushing stock prices out of whack with fundamentals,” The Wall Street Journal wrote when the drama began.
That said, it’s hard to pin all dramatic market swings on the r/WallStreetBets traders. For example, the value of silver jumped to eight-year highs on Monday, Feb. 1, but people in the Reddit community say they aren’t the ones doing it.
How’s Wall Street responding?
Big name trading apps like, ETrade and others have reportedly struggled to remain online amid all the hysteria. TD Ameritrade on Jan. 27 acted to restrict the , “out of an abundance of caution amid unprecedented market conditions.”
Robinhood has also come under particular scrutiny for appearing to severely restrict trades of some stocks while the market was wildly fluctuating that week. Politicians on both sides of the aisle in the US have. Meanwhile, many angry Redditors say they’ll stop using Robinhood. Some have even threatened to join a class action lawsuit.
Nasdaq said it will halt trading on a stock if it finds a link to unusual activity on social media. The company said it sees its role as a “self-regulatory organization” is to make sure its markets act in a “legitimate” way. “Regulators kind of have to catch up with the technology that’s now available,” Nasdaq CEO Adena Friedman told CNBC on on Jan. 27.
Throughout the past week, the markets have temporarily halted trades of GameStop and AMC stocks in particular because of the wide price swings and heavy volume.
I heard people are particularly angry at Robinhood. Why?
Of the stock trading apps, Robinhood appeared to be the most aggressive in shutting down purchases of highly volatile stocks like GameStop and AMC. The company hasn’t given clear reasons, other than vaguely saying it’s working in the interest of users. But the US government may not agree.
On Jan. 29, the Securities and Exchange Commission said it’s “closely monitoring and evaluating the extreme price volatility of certain stocks’ trading prices over the past several days.”
The statement didn’t mention Robinhood by name, but the commission said it would “closely review actions taken by regulated entities that may disadvantage investors or otherwise unduly inhibit their ability to trade certain securities.”
Robinhood declined to comment about the SEC statement. The White House referred questions about GameStop and brokerage firms to the Treasury Department, which houses the SEC.
What does Robinhood have to say?
On Jan. 29, the company published a blog post explaining that the company it works with to help users trade stocks was what had set off all the drama. That company, a clearinghouse that helps facilitate the transaction of stocks and cash between buyers and sellers, requires Robinhood and other trading companies it works with to have a specific amount of money in deposits each day to cover their customer’s stock trades. That amount changes each day, based in part on market volatility.
Robinhood said the increased share trading led its clearinghouse to demand Robinhood increase its deposits tenfold. “That’s what led us to put temporary buying restrictions in place on a small number of securities that the clearinghouses had raised their deposit requirements on,” the company said. The requirements were so large, it said, that it had to restrict trades in order to meet its requirements.
“It was not because we wanted to stop people from buying these stocks,” the company added. “This is a dynamic, volatile market, and we have and may continue to take action to make sure we meet our requirements as a broker so we can continue to serve our customers for the long term.”
Has Robinhood gotten in trouble with the SEC before?
It has. A little over a month ago, on Dec. 17, the SEC charged Robinhood with “repeated misstatements that failed to disclose the firm’s receipt of payments from trading firms for routing customer order to them.” What that means in plain English is that Robinhood didn’t tell users that their share trades might be accessible by people competing against them in the market.
Robinhood made its name by offering stock trades without a standard commission that people often payed at other firms. The SEC said that between 2015 and 2018, Robinhood made misleading statements and omissions, including “in FAQ pages on its website, about its largest revenue source when describing how it made money – namely, payments from trading firms in exchange for Robinhood sending its customer orders to those firms for execution, also known as ‘payment for order flow.'”
The SEC estimated that Robinhood’s approach deprived users of $34.1 million, even after taking into account the savings from not paying a commission.
Robinhood agreed to pay $65 million to settle the charges “without admitting or denying” the SEC’s findings.
“There are many new companies seeking to harness the power of technology to provide alternative ways for people to invest their money,” Erin E. Schneider, director of the SEC’s San Francisco regional office, said at the time. “But innovation does not negate responsibility under the federal securities laws.”
What do the companies think of all this?
GameStop didn’t respond to a request for comment. BlackBerry executives told MarketWatch it was “not aware” of any reason for the recent trading activity. BlackBerry did reach a settlement with Facebook earlier this month over a patent fight, though the terms were not disclosed.
Why are the Redditors doing this?
There’s the seeming easy money aspect, which is compelling in and of itself if you’re that comfortable with risk. But some of them are also framing this as a crusade against Wall Street. “We’re in a war,” one Redditor posted. “A war for the redistribution of wealth.”
You promised me Elon Musk, how’s he involved?
Aside from being a prolific Twitter user, Musk has also recently learned he can drive people to various companies’ stocks. He tweeted about how much he enjoyed buying something for his dog off Etsy, and the stock jumped. Now he’s tweeted about GameStop, stirring up more frenzy.
Any other people’s opinions I should know about?
If you’re a fan of Comedy Central’s The Daily Show, Jon Stewart posted his first ever tweet in support of the Reddit crowd on Jan. 28. Among other things, he also said we clearly hadn’t learned from the financial crisis.
I went to r/WallStreetBets and saw this post of someone’s brokerage account worth tens of millions of dollars in GameStop stock.
That’s Keith Gill, or Roaring Kitty on YouTube, one of the first people to kick off this rally. He spoke to The Wall Street Journal, telling his story about how he never expected this to happen.
He posts a screenshot of his share values from his ETrade brokerage every trading day, in what he calls a YOLO (“You only live once”) update. Many r/WallStreetBets members cite his holding onto shares despite stock fluctuations as inspiration for them to hold as well. “REMEMBER: If [he] can hold even through a 130% dip, so can YOU,” one Reddit user posted as the stock started to fluctuate.
“I thought this trade would be successful,” Gill told the WSJ in the story published Jan. 29, “but I never expected what happened over the past week.”
This sounds nuts
It is. Saturday Night Live of course got a good laugh over the whole thing when the comedy show lampooned the Reddit investors.
“This is crazy, dude,” said SNL’s stand-in for the Reddit investors. “I put all my money in GameStop and I can’t lose.”
Aside from the good laughs, just watching this drama is enough to make your head spin. For example, on Jan. 27, the popular chat app Discord temporarily banned the r/WallStreetBets community from its service for violating its rules against hate speech and glorification of violence. Apparently, some of the nastier elements of the community had repeatedly broken Discord’s rules. Discord said the group needed to do a better job keeping control of that behavior.
The group in charge of the r/WallStreetBets Reddit board made it private during one evening,.
That appeared to spook investors, who suddenly sent GameStop and AMC stock diving that same time. Soon, the group was publicly available again. And it reversed the ban and promised to work with the community instead.
A little over an hour later, the Reddit community was publicly available again, denizens had created a new Discord chat group, and GameStop and AMC stocks were recovering from their sudden slumps. If you’d put down your phone to watch a movie before it happened, you might never have noticed by the time it was done.
Except you may have seen Elon Musk tweeted about how Discord wasn’t cool anymore (Discord eventually reversed its decision.)
OK, and what about The Big Short guy?
Michael Burry is an interesting subject himself. He became famous for betting against the housing market before the great recession kicked in around 2007 and 2008. He’d invested in GameStop, but also said he believed all this behavior was “unnatural, insane and dangerous.”
Of course, some of the Reddit members say they see this battle over GameStop as their Michael Burry moment, making it all that much more interesting.
Should I try to get in on the frenzy?
It’s always smart to consult a financial professional.
Correction Jan. 25 at 5:52 p.m. PT: Fixed the explanation of short selling to make clear how the process works and that there are different ways to bet against a company’s stock price rising.