Gamestop

 I've never been in a GameStop. I know it was a "Brick & Mortar" place where people would trade in old PS3 games for less than half of what they paid and see the game being sold next week for a 100% mark-up on what they paid. 

GameStop has been struggling over the last year due to the coronavirus pandemic, and to the fact that gamers are increasingly purchasing titles virtually rather than physically. As a result, GameStop stock has been steadily going down.

Stock prices are changed by demand. If lots of people want to buy a company’s stock and don’t want to sell it, then demand increases, and the price goes up. If more people want to sell a company’s stock than buy it, then demand decreases, and the price goes down. The more GameStop’s future looked bleak, the more people sold their GameStop stock, decreasing demand.

In turn, the decrease in demand resulted in attention from hedge fund managers trying to “short” the GameStop stock.

Shorting a stock, or short selling, is the practice of borrowing stocks that you don’t own, selling them onto another investor at market price, and then buying them back. Unlike a lot of other trading moves, short stocking is lucrative when the price of a stock falls..... Hedge fund managers will keep the difference when a stock decreases in value. Basically, you sell high, the stock price falls, and then you buy back cheap, and pocket the amount that the stock has fallen for yourself.

Shorting a stock is therefore a risky move.....you have to be fairly certain that the stock you are borrowing will decrease in price. If it doesn’t decrease in price, then you’re out of pocket. If it does, then you’re smiling.

Thus, hedge fund managers will short the stock of a company that is generally expected to be going downhill. Like GameStop.

 As far as anyone can tell, Reddit users from the WallStreetBets sub-reddit banded together to buy up GameStop stock, some believe explicitly in order to fuck over hedge fund managers. The more Reddit users bought the GameStop stock, the more that the demand for GameStop stock increased. The more demand increased, the more that the price rose. The more that the price rose, the more out of pocket those hedge fund managers that had bought the stock became.

Hedge fund managers began freaking out, and buying their GameStop stock in order to stop the rising price. Which only drove the price up higher.

What does Elon Musk have to do with this?

Musk tweeted “Gamestonk” with a link to the sub-reddit. That drew more attention to the practice of driving up GameStop stock, which kept the ball rolling even more.

In short: a sub-reddit fucked a bunch of hedge fund managers by making a stock that was predicted to decrease in value increase in value.

Questions?