GameStop! Ever heard the name?
What about Reddit? The social network for cool, young people (which, incidentally, resembles the BBS systems you used to interact with other folks in the pre-Internet, dial-up days).
This month, a bunch of young folks who've never visited GameStop (because they download all of their games from app stores) decided to use the GameStop stock (GME) to get rich while simultaneously thumbing their noses at Wall Street.
On Wall Street, you can short a stock. What does shorting mean? It means you borrow something that doesn't belong to you, and sell it (Typical WS shenanigans, right?). So you borrow a stock that costs $100 today, and sell it off. Now you have $100 in the bank. Say you borrowed for a month. After a month, you've got to return that stock. So you go back to the market, and buy it. Your hope is, that in the intervening month, the value of the stock dropped. Say it costs $40 now. So you take $40 out of the bank, buy the stock, and return it to the loser you borrowed it from. You have made a profit of $60 in a month.
Of course, this scheme only works if the value of the stock falls. Enter the 2.6 million followers of https://www.reddit.com/r/wallstreetbets/. These guys go around looking for stocks that are heavily shorted. Some stocks are shorted to the extent of 120% of their total float (yep, WS also allows this shenanigan). For a few days now, they went after GME. They started buying this stuff.
So now, you are some college kid sitting in your dorm room, buying stock with your precious little savings. But there's 2.6 million other folks like you buying GME. The value of GME slowly rises as all of these tiny investors buy in.
But, the stock has no inherent value. I mean, who goes to GameStop any more? So these small investors are all going to lose their money, right? Wrong. Enter the hedge funds that have shorted 120% of total GME stock. These wretches have to buy this stock on a certain date, because they have short positions that they must fulfil. (Remember they borrowed stock for a fixed period. Those fixed periods end all the time.)
Before you cry bloodbath, remember that nobody, but nobody, likes the suits on Wall Street.
But this gets better. So now while a bunch of kids are pumping the GME stock, hedge funds must swoop in from time to time and buy more stock to fulfil short positions. This makes the price go up even higher. And who are they having to buy this stock from? The kids in their dorm rooms.
Today those kids are raking it in with GME. On guy paid off their entire student loan. Another is paying for their mother's Lyme disease treatment. Others are donating huge amounts to food banks (which, incidentally, WS would never ever do). Meanwhile, wallstreetbets has already moved on to the next stock to pump and dump.
This kind of sattebazi is what stock markets all over world are made of. Which is why I don't have a single penny in any stock market anywhere in the world. Or in cryptocurrencies. If you've left your savings, or worse, your child's college fund, at the mercy of Wall Street and script kiddies, you are going to hurt sooner or later.
And oh, by the way, what happens when something goes wrong? Well, from what I've seen, these guys were buying GME starting 13 Jan at $20 a piece. On 27 Jan GME reached $350. If things go wrong, which means the stock loses value, then these small guys lose a few dollars (maybe GME would have fallen to $5 a piece, in which case they'd have lost $15 a piece). But when they gain, oh they gain big ($330 a piece gains on GME today). Add to that the joy that all of that money ($330 a share) is coming out of WS hedge funds that add zero value to the economy and are full of people who haven't done a single day's worth of honest labour in their entire lives.
(Another fun aspect. The maximum one of these little guys can lose is the amount they put into the market. If a stock costs $20, the lowest it can fall is $0, so the maximum you can lose is $20. On the other hand, there is no theoretical upper to how much the hedge funds can lose. That same $20 stock can rise to $200, $2,000, $20,000. And these hedge fund folks buy stock by the millions. GME has done a volume of 22 million just today. Multiple millions with $350 and you know the kind of losses these hedge funds are making - quite possibly with your pension fund.)
(I don't know the first thing about stock markets, so if I've made factual errors, please do correct me. Or not. Who cares? I am not putting that knowledge to any use because I don't invest in the stock market.)
What about Reddit? The social network for cool, young people (which, incidentally, resembles the BBS systems you used to interact with other folks in the pre-Internet, dial-up days).
This month, a bunch of young folks who've never visited GameStop (because they download all of their games from app stores) decided to use the GameStop stock (GME) to get rich while simultaneously thumbing their noses at Wall Street.
On Wall Street, you can short a stock. What does shorting mean? It means you borrow something that doesn't belong to you, and sell it (Typical WS shenanigans, right?). So you borrow a stock that costs $100 today, and sell it off. Now you have $100 in the bank. Say you borrowed for a month. After a month, you've got to return that stock. So you go back to the market, and buy it. Your hope is, that in the intervening month, the value of the stock dropped. Say it costs $40 now. So you take $40 out of the bank, buy the stock, and return it to the loser you borrowed it from. You have made a profit of $60 in a month.
Of course, this scheme only works if the value of the stock falls. Enter the 2.6 million followers of https://www.reddit.com/r/wallstreetbets/. These guys go around looking for stocks that are heavily shorted. Some stocks are shorted to the extent of 120% of their total float (yep, WS also allows this shenanigan). For a few days now, they went after GME. They started buying this stuff.
So now, you are some college kid sitting in your dorm room, buying stock with your precious little savings. But there's 2.6 million other folks like you buying GME. The value of GME slowly rises as all of these tiny investors buy in.
But, the stock has no inherent value. I mean, who goes to GameStop any more? So these small investors are all going to lose their money, right? Wrong. Enter the hedge funds that have shorted 120% of total GME stock. These wretches have to buy this stock on a certain date, because they have short positions that they must fulfil. (Remember they borrowed stock for a fixed period. Those fixed periods end all the time.)
Before you cry bloodbath, remember that nobody, but nobody, likes the suits on Wall Street.
But this gets better. So now while a bunch of kids are pumping the GME stock, hedge funds must swoop in from time to time and buy more stock to fulfil short positions. This makes the price go up even higher. And who are they having to buy this stock from? The kids in their dorm rooms.
Today those kids are raking it in with GME. On guy paid off their entire student loan. Another is paying for their mother's Lyme disease treatment. Others are donating huge amounts to food banks (which, incidentally, WS would never ever do). Meanwhile, wallstreetbets has already moved on to the next stock to pump and dump.
This kind of sattebazi is what stock markets all over world are made of. Which is why I don't have a single penny in any stock market anywhere in the world. Or in cryptocurrencies. If you've left your savings, or worse, your child's college fund, at the mercy of Wall Street and script kiddies, you are going to hurt sooner or later.
And oh, by the way, what happens when something goes wrong? Well, from what I've seen, these guys were buying GME starting 13 Jan at $20 a piece. On 27 Jan GME reached $350. If things go wrong, which means the stock loses value, then these small guys lose a few dollars (maybe GME would have fallen to $5 a piece, in which case they'd have lost $15 a piece). But when they gain, oh they gain big ($330 a piece gains on GME today). Add to that the joy that all of that money ($330 a share) is coming out of WS hedge funds that add zero value to the economy and are full of people who haven't done a single day's worth of honest labour in their entire lives.
(Another fun aspect. The maximum one of these little guys can lose is the amount they put into the market. If a stock costs $20, the lowest it can fall is $0, so the maximum you can lose is $20. On the other hand, there is no theoretical upper to how much the hedge funds can lose. That same $20 stock can rise to $200, $2,000, $20,000. And these hedge fund folks buy stock by the millions. GME has done a volume of 22 million just today. Multiple millions with $350 and you know the kind of losses these hedge funds are making - quite possibly with your pension fund.)
(I don't know the first thing about stock markets, so if I've made factual errors, please do correct me. Or not. Who cares? I am not putting that knowledge to any use because I don't invest in the stock market.)