The going-ons of Wall Street and the big investment banks can often be a mystery, somewhat shrouded and opaque as the everyday Joe rarely gets a glimpse into the inner workings of what drives the economy – but the launch of big trading apps and the ability for ‘retail traders’ to take part has given a glimpse into the world, a small piece of clarity, but never anything more – until recently, as January 2021 was able to give a clear view of the stock market and investing strategies that have been used and abused for years, as the GameStop short squeeze moves yet another week closer to becoming a reality.
Just last year, the US based retailer for video games, GameStop, had stock available for as little as $6 per share, rising to around $20 at the start of 2021. With the impact of the coronavirus pandemic and uncertainty for offline businesses, this was heavily shorted by some of the biggest hedge funds with financial experts publicly stating that the stock was looking doomed – but members of an online reddit community over at WallStreetBets identified what was happening – publicly denouncing the stock leads to more sales and a stronger shorting position, and so the community worked against this end.
Millions of users started to buy GameStop shares, driving the price from the early 2021 figure of $20 all the way up to breaching $400, and the impacts were seen very quickly – Melvin Capital, one of the big hedge funds shorting GameStop, quickly fell into hot water as funds were needed to cover the losses from the short position as a $2.8 billion bailout was needed just a few weeks after the price was driven up – this also led to some retail brokerage apps such as Robinhood restricting trades for certain stocks and opening a whole new pandoras box with retail traders. It doesn’t happen often, but clarity and transparency grew in a typically opaque environment.
Perhaps the most interesting thing about the GameStop movement is the approach from many of the retail investors taking part – there has been a rise in online gambling through the past years despite adjustments in regulation, but a number remained unaffected like the sites here for example – and to many that’s exactly what this had seemed like, as if part of the community got caught up in some online gambling fever. With a community of now over four million strong, that’s a lot of people betting on just a few being right, and the community driven mentality not to sell too early – but with the actions for the retail brokerages and now the media attitude towards what has happened, it has turned into much more of a drive to win as another week continues bringing the short squeeze for GameStop even closer, and as Wall Street losses begin to top $70 billion in just January alone because of this and more stocks being identified, this could certainly be a battle that continues for much longer.