The American stock market has been in turmoil since yesterday when institutional investors on ‘Wall Street’ suffered severe losses as a result of the actions of united retail investors. Reddit portals, social media, and Elon Musk are the cause of things considered impossible. All this happens through stock trading activities involving GameStop (GME), a well-known video game retailer.
It is very difficult to formulate what is going on with GME, as the situation is changing along with volatile stock movements. However, this article will try to explain the most important things to understand about GameStop and the ‘short selling’ activities that cause huge losses to some big players.
This situation has also received serious attention by the economic team of President Biden and the Secretary of the U.S. Treasury. Janet Yellen who acted "monitored the situation," White House press secretary Jen Psaki said on Wednesday.
JUST IN: Jen Psaki on #GameStock stock activity: "Our economic team including Sec. Yellen and others are monitoring the situation. It's a good reminder, though, that the stock market isn't the only measure of the health of our economy. " #GME pic.twitter.com/5hywniFVH8
- Forbes (@Forbes) January 27, 2021
GameStop’s stock price, which closed higher on Wednesday at $ 347.51 (up nearly 2000% in less than a month) does not reflect the company’s potential or position. This is only because of the war that broke out between "retail investors" (everyday traders, or ordinary people) and institutional investors (large Wall Street firms).
Hedge funds or institutional investors, supposedly professionals, have bet on GameStop shares using a trading technique called ‘short selling’ - they make a profit when the stock price falls. Retail investors, who have collectively colluded on the r / WallStreetBets subreddit portal space, have taken hold of the GameStop shares they own and have refused to sell them - even though the value of the shares has rocketed until some of them have made millions of dollars on paper - with the aim of to charge Hedge fund investors who are 'short selling'.
The battle began vigorously last week, when users on the Reddit portal r / WallStreetBets continued to buy stocks as major investors from institutions (or sharks) controlling GameStop stock offerings began to ‘short sell’ the shares. The ‘short selling’ action is profitable if the shareholders sell their shareholding, but the opposite happens when they do not sell. The situation forced the banks to buy the stock to bear the losses of 'short selling' bets that were not met because the retail shareholders who had conspired on Reddit refused to sell.
Here is an easy-to-understand analogy about ‘short selling’:
$ GME Short squeeze explained nicely:
Snake - Melvin Capital & Citron
Apes - Retail Investors
Credit @ the group pic.twitter.com/0vyyg9lsnJ
- Tashi Tsenkyap (@tashitsenkyap) January 26, 2021
The "unfortunate group" in this situation is a group of retail investors organized under the r / WallStreetBets subreddit, which has more than 2 million customers. Last week, one of them realized that GameStop was in a "floating negative" position. This means that the amount of "short selling" - that is, the shares lent to investors that will later have to be returned - is actually greater than the number of shares available to trade.
"It is possible that there are no original stock units issued by GameStop remaining in the market," the user wrote. “The [shares] that you, I, and [other users] own are limited shares. […] It is not possible for [short seller] to succeed. They will only be forced to repurchase their short shares, as having exceeded 100%, there is no other way to escape, unless the institution sells everything they have to the open market. ”
In other words, the longer people at r / WallStreetBets hold their GameStop stock, the higher the price.
Is Gamestop involved in this conspiracy? No. The company’s last communication with investors was through a report on January 11 on sales revenue 2020 (total sales down 3.1% from 2019).
However, on the same day, GameStop announced that Ryan Cohen, a well-known investor who bought a 10% stake in the company, had joined the board of directors, along with his two associates. This led to an initial spike in GameStop stock prices, as Cohen in November wrote an annoying letter, pressing the company's board of directors. Small traders liked it, saw Cohen as a savior and they bought shares en masse. Investment banks are of the opinion that the actions of such amateur retail investors will be self-defeating, and bert
