GameStonks

This is certainly a very interesting time that we are living right now, I dunno maybe people are so bored at home, that they started baking bread and making coffee when the lockdown began, now a bunch of Redditors has literally shaken the stock market and humiliated the big guns at the Wall Street. But how!? Lemme explain what is exactly going on with Reddit, the Wall Street, and this company called GameStop.

Before going deep, let’s look at some basic terms that come into action here. So, “SHORT”, basically we think that if we invest in any stock when the graph goes high, we make money right? Well, not always, there is one way of making a profit even when the stock price goes low, that is what Shorting is all about. It is like making a bet that a particular company’s stock will go down, and if it goes down, you’ll make money. So, how this Short-Selling actually works is that an investor (huge corporate hedge funds most of the times) borrows the stock from a company, sells it immediately at its current price, and when the price of that goes down they buy it back at that lower price and returns the share they borrowed to the company but keeping the difference. Basically, these short-sellers are betting that the stock they borrowed and sold will go down so that they can re-buy at a lower price. I know, it’s a bit complicated so let's look at an example.....

Let’s say I want to short this imaginary company ABC whose current stock price is Rs.100. What I’ll do is, I borrow 1 share from ABC for Rs.100 and sell it immediately for the same price. Now, I have Rs.100 but I owe ABC one share, since I’ve just borrowed it, I need to give it back to them. So, I wait for the price to go down. Then let’s say the price of ABC drops to Rs.50, now I decide to buy back the stock at just Rs.50 and give it back to ABC. In the end, my profit will be the difference, in this case, Rs.50. But, on the other hand, let’s say instead of dropping to Rs.50, the stock doubles to Rs.200. I still need to return it right, but this time it’s gonna cost me more than I sold it for. I have to buy back the stock at Rs.200, which I sold for Rs.100. So, a 100 bucks loss for me. The more the price rises, the bigger will be my loss. Since the price can rise indefinitely, the potential loss for a short-seller is also unlimited.

Coming to the main story, GameStop. GameStop is a brick-and-mortar(offline) store for buying, selling, and trading games and gaming devices. And it was struggling, so looking at the condition of the company, a lot of hedge fund companies bet against GameStop and other similar companies like AMC entertainment and Nokia. They short these companies and were waiting for the prices to go down-hill so that they can make huge profits. But what happened is the complete opposite....

A few weeks ago, a Redditor named u/deepf**kingvalue on the subreddit r/wallstreetbets noticed that a hedge fund company had taken a massive number of short trades against GameStop. So, he convinced everyone on the subreddit to buy stocks from GameStop as much as possible and hold on to it. Since a lot of people showed interest in buying GameStop stocks, the price sky-rocketed, and the hedge fund companies started to lose money, we are talking in billions here. They have to buy it back at some time right, and the more the price rises, the bigger their loss. So, they started to buy it back before it goes even higher, which in turn increase the stock price even higher, this particular scenario is called a “short squeeze”, but I don’t wanna go too deep into this further. So, basically, a bunch of Redditors trolled the stock-market giants at their own game, now all of the wall streets is saying that this kind of public participation in the market is not fundamentally right and is illegal. A lot of big names are also in the game now like Elon Musk, Mia Khalifa(I don’t know who that is), and more tweeting about the meme/movement.

So, I guess that’s it, 'Mutual Fund investments are subject to market risks, read all scheme related documents carefully', and I’m not a financial expert of any sorts, so if you guys wanna know more about this, there are a ton of articles out there right now. Anyways, regardless, THANK YOU FOR READING!!

Digitally Yours ✌️