Business

A Rundown of Reddit’s GameStop Stock Market Scheme

ESTIMATED READING TIME - 3 MINUTES

Questions Answered in This Post:

  1. What Happened With GameStop Stock Last Month?
  2. What’s The Deal With Robinhood?
  3. What Is The Future of These Stocks?
GameStop’s and AMC’s stocks have been on an epic roller-coaster ride.
Getty Images

1: What Happened With GameStop Stock Last Month?

Throughout the past week, the stock market has been booming with stock activity, withan overall increase of over 1,500% in GameStop, the electronics and video game retailer, stock throughout the month of January. On Reddit, an online social forum, several amateur stock market traders who frequented a Reddit page known as WallStreetBets began discussing ways to subdue Wall Street investors known as short-sellers. These short-seller investors bet against certain stocks that they think will drop in value. They earn their profit by selling the borrowed shares, hoping that their share values fall, and if they do, the short-sellers will buy back the same number of shares at the lower values, pocketing the difference.

Many of these short-sellers on Wall Street were speculating against declining businesses such as GameStop, AMC Entertainment, BlackBerry, Koss, Express, Nokia, Genius Brands International, and Naked Brand Group. As a result, the members of the WallStreetBets Reddit page conspired to buy up large sums of shares in these companies, causing the value of the stock to surge. The scheme quickly gained traction on social media and GameStop stock values began to skyrocket. GameStop’s stock value reached an all-time high of $347, compared to an average of $4 throughout 2020 and the start of 2021. All in all, everyone jumping in on this scheme was going to get some quick cash, all at the price of Wall Street short-sellers. The overall losses of these short-sellers were drastic, totaling to be over several billion dollars. Both the founder of Reddit and creator of the WallStreetBets page were astounded by this, claiming that neither of them would have ever believed that such a thing could occur from the GameStop trade. 

The GameStop Corp. logo on a laptop computer and Robinhood application on a smartphone.
Tiffany Hagler-Geard | Bloomberg | Getty Images

2: What’s The Deal With Robinhood?

However, these power investors were not unstoppable for long. The popular amateur investment app, Robinhood, on which many were making their transactions, enforced a trade suspension on many of these stocks. Share-trading platforms such as Robinhood are required to deposit a certain amount of money each day in order to balance the costs of its users’ stock trades. Because of the extreme volatility of these stocks, the company was not going to be able to cover those deposits. As a result, they enforced a temporary suspension on those trades, which was later alleviated to being just a limit on the number of shares or options contracts.

However, this excuse was not taken well by users. The investors were forced to either hold or sell their stocks, with a freeze on any who had purchased more than a certain number of shares. This infuriated the investors, causing them to believe that this action was not a result of any financial issues, but rather just a pitiful surrender of the business to menacing Wall Street institutions. There has already been one class-action lawsuit filed against Robinhood, along with many big names such as Elon Musk and Alexandria Ocasio-Cortez speaking out against Robinhood’s decision. 

3: What Is The Future of These Stocks?

In the end, even if the market were to open up again and allow for these investors to freely sell, trade, and buy shares in these crashing companies, this bubble will eventually burst and the market will return to its regular hierarchy. Wall Street experts have explained that eccentric surges such as this are only ever temporary, and that the market will eventually regulate. 

Sources

https://www.cnet.com/news/reddit-wants-to-send-amc-gamestop-stock-to-the-moon-heres-how/

https://www.cnbc.com/2021/01/31/robinhood-to-continue-trading-limits-on-monday-customers-can-still-only-buy-one-gamestop-share.html

https://www.cnn.com/2021/01/30/business/gamestop-reddit-rebellion-explained/index.html

Leave a Reply

%d bloggers like this: