If you have even a remote interest in the stock market, it’s almost guaranteed that you’ve caught wind of the major chaos on Wall Street.
What started as a small idea on the social media platform Reddit, turned into a full-blown revolution that turned the stock market on its head. Ordinary citizens conspired to throw wealthy Wall Street investors for a loop, and they were more successful than they were likely ever expecting. Reading up on all of this trading and selling can quickly become confusing, and exhausting, so let’s break down exactly what happened, and what it means for the economy.
How it Got Started
The war on Wall Street started as many movies and novels have; with common people getting fed up with the rich. A group of people on Reddit was paying close attention to the stock market and noticed that hedge funds, which are groups of investors that make risky moves when it comes to betting on stocks, had been shorting the stocks of GameStop that they owned. Shorting is when investors borrow shares of stock from brokers and immediately sell them.
They do this because they are counting on the price of the stock falling, and they intend to buy the stocks back at a lower price, return it to the broker, and make a profit.GameStop used to be very popular, but has been in decline for the past ten years or so, so it makes sense that hedge funds and other investors would expect their stock price to fall. However, Redditors had a different idea. Many members of the stock-watching group agreed to buy shares of GameStop stock, increasing the demand, and consequently increasing the price of a stock-the exact opposite of what all those wealthy investors had expected to happen. And that’s when things started getting crazy.
A Chaotic Scramble
The stock purchasers made an immediate, incredible impact. By the end of the day on January 27, 2021, the price of a single share of GameStop stock had reached an impressive $347.51, a 1,500% or more increase in price since the beginning of January. The increase in price scared all the investors that had previously shorted GameStop stock and planned to buy it back at a lower price, so they started to buy back their shares before the price could go any higher, therefore increasing the demand even further.
However, by that time, it was already too late for most of the hedge fund members, who were forced to purchase the shares back at a higher price than they had originally bought them for, and lose their money. The main hedge fund involved in this debacle is reported to have lost over $13 billion dollars, and to have filed for bankruptcy. Understandably, members of the hedge fund and other investors who were counting on the GameStop stock going down were furious. They had been outsmarted by Redditors online and had lost a ton of money because of it. So as people continued to buy the stock and raise the price, in an attempt to salvage what they could of their investments, Wall Street investors tried to get other financial companies to take their side.
Regaining Control Only Fanned the Flames
In an effort to regain control of the stock market and get the price of GameStop stock back down, a company called Robinhood, which allows for stock and money trading, enacted restrictive measures that stopped trading and purchasing of GameStop stock. These actions sparked a large amount of backlash, from ordinary citizens and celebrities alike. Some politicians were so infuriated that they called for Congressional hearings, accusing Robinhood and other companies like it of participating in market manipulation, and trying to take the side of Wall Street.
And when people began to show their disapproval of Robinhood through online reviews, Google weeded through them and removed over 1,000 negative ratings and comments. The controversial restrictions and censorship ended up proving the Redditors’ point; that companies and the most wealthy in society had become too powerful, but that the “little people” could always band together and turn things upside down.
The Reddit group’s movement began a little over a month ago, but investors and the stock market are still feeling the effects of it. Today, the price of GameStop stock is about $52.00, which is much lower than $347.51, but still much higher than the prices it was selling for at the beginning of the year. And as is to be expected, people on both sides of the situation are angry; Redditors and other Americans are upset with Robinhood and Wall Street sympathizers that tried to stop buying and selling, while investors and hedge funds are furious that those groups were able to have the impact that they did and make them lose so much money.
This may not be the end of the road, however. The members of the Reddit group have their sights set on companies like AMC, Blackberry, and Macy’s, which have struggled in the past few years like GameStop but could potentially make a comeback in the stock market with Reddit’s help. Whatever does end up happening, the battle between Reddit and Wall Street has surely been a fascinating one.
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