Tuesday, January 27th was a strange day for most traders. Traders referring to those who pursue the passion of trading stocks back and forth, profiting from the gain and decrease in the price of stocks. As most aficionados woke up, drank their morning coffee, and turned on their computers for what seemed to be a routine day, they were greatly surprised to see a drastic turn of events. A company on the decline by the name of GameStop had suddenly risen over 500% in a matter of mere hours. But why and how did this happen?
GameStop is a company that most of the world thought was a lost cause, at least in the stock market. The company was planning to close more than 1,000 of its stores by mid-April of 2021. GameStop was becoming obsolete, its stores weren’t selling and the terrible trade-in rates had drawn most people away from buying at GameStop. One would only assume that with the digital age the company would perform even worse than it already was.
On the morning of January 27th, the subreddit r/wallstreetbets shocked the world. They single-handedly out-smarted multiple large and well-known hedge funds. Multiple users noted the large amount of shorts planned for the whole week. A short is essentially a bet against the company. In other words, the hedge funds that short against the company profit off the stock going down in price. For a company like GameStop, no one bats an eye at a short. The interesting part happens where a group of individuals band together to make a profit.
The more than 5 million members of the subreddit banded together and held onto their shares of GameStop or GME as it’s known. The group of small and amateur investors used their leverage to raise GameStop as well as many other companies' stocks that were on the decline. Nokia and Bed, Bath and Beyond were among the few. The large surge of orders to buy stocks launched the stock forward causing massive gains in the price of the stocks. The small time investors raked in cash as the large Wall Street hedge funds were forced to buy the stocks at record high prices.
The revolution of small traders coming together against the Wall Street giants is a modern-day David vs. Goliath story. Everyone who had invested before the large spike in price made hundreds if not thousands. 100 dollars invested into GameStop stock a week ago would have been worth more than 1,500 dollars on Tuesday.
As of late Wednesday and early Thursday, many trading platforms such as Robinhood and TD Ameritrade have halted the buying and selling of certain stocks, most notably the GME or GameStop stocks. Some users have even reported brokerages forcing users to sell their shares against their will. Others have expressed anger with Robinhood for not permitting users to even check the stock's price and trade freely.
As for now, the market has somewhat calmed down and things seem to be settling down. As for the members of r/wallstreetbets, there seems to be a lot of divide and chaos happening amongst themselves. A large majority of them, however, are calling for a large class-action lawsuit against multiple brokerages for not allowing users to trade freely.