The GameStop stock issue involves a group of ‘anchovies’ beating ‘sharks’ on Wall Street. What exactly happened?
At the end of last January, there was a worldwide uproar and various social media on the issue of GameStop shares where a group of retail investors could 'charge' institutional investors to the point of having to lose billions of dollars.
This issue started from the Reddit website, where there was a discussion group known as WallStreetBets. In the discussion group, there were Reddit users who noticed that the investment fund company or hedge fund was making multiple profits by doing ‘short selling’ of GameStop shares.
But before that, do you know what ‘short selling’ is?
Basically we know why the stock is rising is because many investors are buying a stock or its demand is high. Investors make investments because they feel the company has the potential to continue to grow.
As it grows, the company will make a profit and the shareholders will also receive a profit.
The process of generating profits in stocks, usually by buying stocks at low prices and selling them at high prices.
However, there are other ways to generate profit by doing 'short selling'. The investor will first sell the shares and then repurchase the shares through a loan from the broker.
For example, Ali borrowed an iPhone from Abu. Ash has an iPhone factory.
So Ali borrowed an iPhone within a year. For example, the price of the iPhone when borrowed by Ali is worth RM5,000.
After that, Ali also sold the iPhone at another store for RM5,000.
Within a year, the price of the iPhone dropped to RM4,000. So Ali bought the iPhone from another store for RM4,000 and returned the iPhone to Abu.
From there, Ali has generated a profit of RM1,000. But what will happen if within a year, the price of the iPhone goes up?
For example, the price of the iPhone went up to RM6,000. Ali also had to buy at RM6,000 and had to bear a loss of RM1,000.
Through ‘short selling’, investors make a profit when stock prices fall. So this ‘short selling’ is a hedge fund strategy to generate profits many times over for the misery of companies that are experiencing losses.
As you know, ‘hedge fund’ is an investment fund company. This ‘hedge fund’ consists of wealthy investors who make money when the market is good and bad.
Many social media users say the ‘hedge fund’ is cruel because it generates profits worth millions of dollars over the misery of other companies. Due to their anger, many conspired to lose the hedge fund.
People feel that the ‘hedge fund’ is busy making profits because the market is controlled by them.
GameStop is a video game selling company. And because not many people go to the store to buy video games and can only buy digitally other than the outbreak of the Covid-19 epidemic, the company’s stock has plummeted.
That factor drives the ‘hedge fund’ to generate profits through ‘short selling’. Reddit users see the ‘hedge fund’ has borrowed 140% of all available GameStop shares.
Ideally, a ‘hedge fund’ can only borrow 100% of all available shares. For example, 10 investors hold RM100. This means that the maximum ‘hedge fund’ can only borrow as much as RM1,000 but its value has reached RM1,400.
The situation clearly shows how complex the current financial markets are and reveals the greedy attitude of the ‘hedge fund’. Oeh it, people are trying to buy GameStop shares until the price goes up.
After Gamstop's share price showed an increase, the 'hedge fund' which was experiencing losses had to do 'short selling' because it felt it could manipulate the market at that time.
The situation was warmed up by the presence of Tesla founder Elon Musk who told the public to buy GameStop shares and criticize ‘short selling’ via his Twitter.
Due to Elon Musk's 'tweet', GameStop's stock price soared, causing the 'hedge fund' to incur losses of billions of dollars.
However, retail investors' efforts were unsuccessful when the stock trading platform in the United States (US), Robinhood, barred the public from buying GameStop shares. Robinhood's actions affected GameStop's share price hike.
Robinhood is a stock trading application that does not charge any fees and is user friendly. Many U.S. citizens are just starting to 'trade' stocks using Robinhood.
But how does Robinhood generate profits if they do not charge any fees? Some claim that the platform's profits are generated through the losses of investors and the support of the 'hedge fund' so that they deliberately removed the GameStop 'buy' function in the application.
Melvin Capital, which is one of the leading US hedge funds and involved in the 'short selling' GameStop, got a 'clear position' but suffered a loss of more than US $ 2 billion.
One Reddit user made a profit of US $ 20 million after buying GameStop shares of US $ 55,000.
