The sudden investor craze that set in motion a string of events which led to the GameStop stock climb by 1,500% within a couple of weeks, had Wall Street sit up and take notice. The sudden acceleration of the GameStop stock price was backed by numerous ‘at-home traders’ found each other on the Reddit sub-page ‘wallstreetbets’. What transpired is a sign of how a motivated and coordinated movement can quickly affect stocks within the US market.
What is GameStop?
GameStop is an American video gaming retailer. Within the last couple of months, companies such as GameStop, have been heavily shorted by investors and hedge funds on Wall Street. The general consensus was that these companies were set to lose out spectacularly – not before traders on Wall Street took their piece of the pie. However, the sudden turn of events had markets looking on in disbelief and awe.
As individuals banded together in a show of unity, amateur traders started to buy shares en-masse while leveraging call options on a wide scale. Each trader may only have invested a small amount, but with a million-plus at the helm, a sudden surge in the price of GameStop stock put a massive short squeeze on established hedge funds. As interest evolved into sheer exuberance, more and more retail investors got it involved. The short squeeze forced a number of hedge funds to cut their losses and buy the stock at a higher price than they’d shorted.
The entire idea behind small-time traders, through the use of technology and communication platforms, being able to pull off a successful attack and leverage individual positions to achieve a united goal, is certainly one for the books. With speculation exceeding rational norms, Wall Street was forced to act as companies were on the verge of getting burnt based on their short position.
Recent activity
Thursday saw the end to a sudden buying frenzy that might as well have continued, be it not for online broker intervention. Some of the top online brokers restricted trading of shares in companies such as GameStop and a slew of other highflying stocks. As markets are still coming to terms with what has played out over recent days, the Securities and Exchange Commission has spoken out and is said to be keeping an eye on the situation. From an ethical standpoint, many are wondering why online brokers have got involved at all. For one, without a clear sign of market manipulation, traders should be allowed to trade as they see fit. It’s safe to assume that the sudden craze would have dissipated on its own, regardless. However, many are pondering what the lasting effect will be on the market.
