In the past few days, you must have seen your social media and news timelines flood about GameStop. If you too are super clueless about this development, here is everything you need to know.
So what is GameStop?
GameStop is a video game chain with over 5,000 stores. Here, customers can buy, sell and trade their games and their corresponding accessories. However, in the past years, these chains have been struggling to survive. This is due to the upsurge in online shopping, digital markets, and the increase in online gaming chains. and To add to their misery the coronavirus pandemic had worsened the situation.
But why has it gained sudden momentum in the stock market?
To simplify a long story here is what happened. It was an event of small retail investors who played with the system successfully beating larger and more established traders. This success is credited to Reddit. This sudden explosion of GameStop can be quite marked as a historic moment.
Thus, GameStop’s (GME) stock price has suddenly exploded in the past few days. It was below a value of US$ 20 per share, for almost the entire of December and mid-January. Now, it has shot up over US$ 300 per share.
According to WIRED WallStreetBets moderator Bawse1 said “It was a meme stock that really blew up.” “The massive short contributed more toward the meme stock”, he further added commenting on this miraculous short selling.
Before we move on further to talk about GameStop, here is an overview of basic stock market concepts.
First comes “Day trading.” This simply means the activity of buying and selling a stock within the same day. It can also be done multiple times throughout the day. The main aim of this act is to achieve several profits in small amounts in the course of the day. However, one cannot deny the risk involved in it. Especially on Wall Street, it is considered a controversial and risky concept. It is important that before you get into this practice, you have sufficient knowledge of the technicalities. Otherwise, you could be a victim of malicious internet scams.
The next term ‘short-selling’ is relative to the story. This is a technique used by traders when they anticipate with an assurance that their stock is going to fall. For Example: As a trader, you borrow one share from your broker priced at ₱200. Then you soon sell it at the same value. After a while, as anticipated, when the price falls to say, ₱170, you repurchase the stock at a lower price. Then you finally return the borrowed value to your broker. This helps you make a profit as when you first sold it you earned the same amount, aka ₱200. But when you re-purchased it, you paid only ₱170. This leaves you with a smart profit of ₱30.
Thus, this above example is on similar grounds to another tweet attempting to explain this same concept of GameStop.
Hence, here is where GameStop became a game-changer. In the era of online shopping, customers have almost completely stopped visiting physical stores for their needs. Thus, several companies like GameStock have lost considerable amounts of money and faced the heat of digital shopping.
However, someone on Reddit noticed that a Hedge fund (basically an investment structure set up by an advisor) took a large number of short trades against the company. Hence, a group of day traders on a Reddit group called r/wallstreetbets then decided to join hands. They bought as many GameStop stocks as possible. This resulted in a humongous price rise until the hedge fund started loosing billions. As a turn of events, the Hedge fund could not tackle the losses and declared Bankruptcy.
d the meme stock.’ he said commenting on this short-selling miraculous move.
This stock market miracle has had a chain of mixed reactions.
Rep. Alexandria Ocasio-Cortez too commented on the GameStop phenomenon. She tweeted on Thursday “Gotta admit it’s really something to see Wall Streeters with a long history of treating our economy as a casino complain about a message board of posters also treating the market as a casino.”
“I am proud to be a part of this piece of history with you. … Call it an opportunity, call it revenge, or justice, I know we are on the right side of this”, said a wallstreetbets member late Wednesday.
This event has also influenced the rise in the value of a meme-based cryptocurrency ‘Dogecoin.’ The coin shot up to 80 percent with an exponential increase in trading volume of over 800 percent. The subreddit r/SatoshiStreetBets refers to itself as the "Crypto version of WallStreetBets." It all started when the chairman of WallStreetBets on Thursday tweeted "Has Doge ever been to a dollar?" A few hours later millions of people joined hands with the subreddit Satoshi Street Bets. They motivated users to sell the Dogecoin until its value touches a dollar.
Well, as expected this phenomenon is not very well received by the big leagues like Wall Street. Some of them even claim it to be illegal as they are pushed into a state of crisis. A state of crisis because it starts to dawn upon them how common masses in unison can influence the stock market to such grave heights.