It’s a story of a Group of Reddit investors who took a challenge to the big guys of Wall Street.
Short Selling: A simple concept where an investor borrows a share (from his broker) and sells it in the market. Expecting a drop in the share prices, he targets to buy it back at a lower price in the future and return it to the lender. So, the difference in price is his profit.
The $12 billion worth hedge fund named Melvin Capital and other hedge funds had shorted the shares of GameStop and it came to the attention of these small investors. Now they took a challenge to counter this fall in share prices and they started buying it. Now since a lot of shares were being bought, the hedge fund had to square off their short position and in order to do so, they had to buy it, which further increased the price of the share (Short Squeeze).
The hedge funds accounted for losses of more than $23.6 billion and are now on the brink of bankruptcy. Wall Street demanded short-selling to be made illegal and trading platforms like Robinhood even stopped the purchase of the shares of GameStop on their platform to control the rising prices.
The company was struggling with its share price worth $17 at the beginning of the year and amidst this drama, it reached a 52-week high of $483 showing returns of 2700%.
Therefore, this story taught us that it’s not easy to make big bucks in the stock market and the rich cannot just manipulate the market in the way they want.
This was the GameStop frenzy.
Want to become an overnight millionaire? The Stock Market is not the place.