"What's Going on with Gamestop?"
5 minute read
Jasmine Tadros | Feb 1, 2021, 5:13 PM
The stock market has been trending recently after a Reddit forum called ‘WallStreetBets’, gave GameStop shares a significant boost.
What is GameStop? Reddit?
Most people are aware that GameStop is an American shop that sells electronics, mainly focusing on gaming consoles and video games themselves. Due to the pandemic, GameStop was not doing very well since less people were coming into stores to buy games.
Reddit is a social media platform in which people join forums that interest them. In these forums, people can discuss their interests and topics they enjoy with other people. As previously mentioned, the Reddit forum ‘WallStreetBets’ is where people discuss stocks and their investments in the stock market.
Since GameStop was not doing particularly well, hedge funds speculated that it would lose value. A hedge fund is a company that buys and sells shares in a company and agrees to buy them again in the future. If the value of the shares decreases, then the company makes profit by purchasing them for a cheaper price than what they sold them for.
A large number of people on the Reddit forum decided to buy shares in GameStop which is opposite to what hedge funds had bet on. This led to an inflated demand for GameStop stocks, which in return, caused them to increase in price by more than 1000%. The hedge funds who had bet on GameStop were forced to buy back their shares, but had to purchase them at a more expensive price, since they had lost their original bet.
Why Did People Do This?
A good amount of people participated in this scandal just for fun and excitement. However, other people wanted to make hedge funds lose money as some sort of revenge for the large companies that had caused a financial crash in 2008. Other people said that they donated their profits to charity.
The event was overall a major learning experience for all investors and companies in the stock market. Additionally, lots of people found this to be humorous and created various memes out of the situation.
Financial service companies have restricted people by only allowing them to sell the retail stocks that are significantly increasing in price. Consequently, the prices of the GameStop stocks decreased, but the hedge funds still face irreversible losses.
Currently, financial experts are studying how investors may impact the stock market similarly in the future. They are also examining the effects of social media and how it can remarkably affect a company’s shares in such a short period of time.