Gamestop shares hit an all-time high this past week despite the company losing money in recent years. The shares are up 928% in the first month of 2021 because of an army of Reddit traders from the thread r/WallStreetBets. The breakneck rise of the stock caused disarray on Wall Street, as hedge funds bet against the stock’s increase by “shorting” it. Now, popular trading apps have made a controversial decision to limit the purchasing amount of the video game distributor’s shares.
The rise of Gamestop stock first occurred when the company welcomed new additions to the board of directors including Chewy co-founder Ryan Cohen. As reported by CNet, posters on the subreddit “believed they could force a market rally by creating demand where there had been little before.” Then Elon Musk tweeted out a link to the subreddit r/WallStreetBets to his 44 million followers revealing the online trading community taking on Wall Street.
Gamestop was struggling to stay afloat even before the COVID-19 pandemic, so it was a no-brainer for Wall Street professionals to short the stock. According to the Associated Press, shorting is “how investors can make money off stock falling. In a short sale, they borrow a share of GameStop and then sell it. Later, if the stock price does as they expect, they can buy the stock at a lower price and keep the difference. GameStop is one of the most heavily shorted stocks on Wall Street.” This means they were betting on the stock to fall, and when it didn’t, some buyers lost a lot of money — and by “a lot of money” we mean $19 billion dollars as of Friday.
The scheme quickly moved on to other struggling businesses like AMC and Blackberry. This caused trading apps like Robinhood and Etrade to limit the purchase of these volatile stocks.
Some Redditors are seeing this as a David vs Goliath scenario, where everyday people are pulling the strings on Wall Street. While others maintain they’re simply fans of Gamestop and genuinely like the stock. The Associated Press reported that in the long run a “stock’s price tends to track with the company’s profits,” and Gamestop’s future remains iffy due to video game industry’s move to online buying. The video game distributor’s motto “Power to the players” (or should we say people) is taking on a whole new meaning during this ordeal.