Famously, GameStop is known for selling physical copies of video games. All we need to know is that their stock price is currently around $300. But, where the confusion lies, is that it started at $4. So, what in the hell happened? A group of Redditors analyzed GameStop and basically concluded its price was really undervalued. Naturally, they then bet millions that GameStop would fail. Henceforth, these band of Redditors now own huge numbers of stock.
But they didn’t stop there, did they. No, of course not. They endorsed and encouraged this thing called ‘shorting’. This is a bet that a company’s stock will become less valuable, occuring when an investor sells shares of a stock they don’t own. Massive hedge-funds do it all the time.
Other redditors gradually but surely caught on that GameStop stock was becoming the most shorted stock in the whole stock market. This meant that, at some point, the short sellers would be forced to close their positions. More people invested in GameStop. More people adopted the mentality that, if you bought its stock, you were going to become rich; if you sell it, you are only helping the hedge funds.
So, this has left the GameStop shorts stuck and rather stranded. If their stock goes over $1,000 per share, banks require short sellers to cover their shorts immediately, in turn making stocks sky-rocket further. However, if this doesn’t happen, hedge finds will go bankrupt.
Described as the ‘French Revolution of finance’, this generation is seeing the democratization of financial information. Who do you want to win?
Find out whether you have what it takes to be a part of this revolution by reading this post about the pros and cons of investing in the stock market right now.
