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- Christy Grand
- BBC News Beat
‘Game Stop’ shook the US stock market. Gamestop is a company that operates a video game store and has been neglected in the online age. How could the share price of such a company skyrocket?
What kind of company is Gamestop?
GameStop is a game retailer that sells products related to games, such as video games and consoles.
It’s like a holy place for millennial youth, once in every mall in America.
Usually when stocks skyrocket, there are business reasons, such as new technology or new business announcements.
However, GameStop hasn’t had such an announcement recently. Due to the new coronavirus infection (Corona 19), business continues to slow.
Gamestop posted losses in 2019. More than 1,000 stores were scheduled to close in March.
Let’s pay attention to Reddit
Reddit is a social networking site like Twitter and Facebook. It is a form of discussion with continuous threads, and there are discussion rooms for each topic such as drama, soccer, history and action.
One of them is ‘Will Street Betz’. This forum is where individual investors complain and share tips and advice. There are over 4 million subscribers in this room alone.
How did this situation happen
As mentioned above, GameStop is not a good company. No more companies have received ‘face-to-face benefits’ from Corona 19. Who goes to the mall and buys game packages these days?
In this situation, some hedge funds began shorting in anticipation of a drop in the company’s share price from late last year.
Short selling is an investment technique in which shares are borrowed and sold in advance, and then if the price of the shares really goes down, they are bought back at a lower price and the borrowed shares are repaid. to get a margin.
What is the short sale?
A simple example is this. Suppose you borrowed a Pokémon card from a friend for a month. But you are selling that card to someone else for 5000 won.
A few days later, a new card pack was released and the value of the card sold at 5,000 won fell. You can then buy back the previously sold card for 3,000 won. This is to leave a 2,000 won margin.
So you don’t have to lower the stock price?
Yes. On the contrary, if the price of the shares increases, the short sales generate losses.
The news that some hedge fund companies are going to sell GameStop shorts spread to Wall Street Betz, and individual investors began buying GameStop shares.
In particular, after Elon Musk, the CEO of Tesla, mentioned ‘GameStop’ on his Twitter on the 27th, GameStop’s stock price rose significantly.
The aggressive share prices of individual investors surprised everyone. Other companies with a large share of hedge fund short sales have also been targeted by individual investors.
In the end, hedge funds with a big short sale to Gamestop suffered a big loss.
War on hedge funds
This phenomenon is believed to have occurred because individual investors mobilized to fight the forces of short selling.
A popular Reddit thread says this was revenge against the finance companies that caused the 2008 global financial crisis.
Financial analyst Neil Wilson pointed to the “vigilant morality” of some individual investors.
“They are desperate to take Wall Street. When you hate hedge funds and enter the debate, you are full of insults for the easy money that financiers make. It is also an intergenerational struggle. We want to take money from the rich and redistribute it to millennials who don’t have money. “
Join individual investors in the financial industry.
The fallout, however, spread to the entire stock market when hedge funds, which suffered massive losses in the shop, began selling other stocks they held.
On the 28th, a controversy arose when Robin Hood, a free American stock app used by individual investors, blocked further purchases of some stocks, including Gamestop, and only allowed them to sell. Another free stock app, ‘Interactive Brokers’, has a similar policy.
The US government and regulators also expressed concern, saying they are watching the situation.
White House spokesperson Jen Saki said on the 27th: “Treasury Secretary Janet Yellon’s economic team and Joe Biden’s administration are looking at the stock market and stocks showing abnormal trends, such as the stopping play “.