With the words “GameStop”, “Reddit” and “stock market” raging on social media it has probably got you confused and running for Google. Don’t worry, we are here to help.
What is GameStop?
GameStop is an American shop that sells games, consoles and other electronics.
Just a kind of normal store that was not doing very well as a result of the Covid-19 pandemic.
Why it is being talked about with Reddit
In case you did not know, Reddit is a social media site where you join forums about particular topics you are interested in.
The one important to us here is called wallstreetbets. More than four million people are in it, usually discussing stocks and shares and where they’re going to invest money.
Now lets get into it
You remember we pointed out that GameStop was not doing so well because of the pandemic as it was a physical store and online shopping was now the thing.
With fewer people out shopping due to the pandemic and most games being sold online, things weren’t looking great for the company.
People who buy and sell stocks often bet on which companies won’t do well in the future.
They borrow shares in the company and sell them, promising to buy them back later.
They do this because when the said company loses value, they will make a profit when you buy them back and the price has fallen.
If you still do not understand, imagine borrowing something and selling it to someone else for $100 knowing beforehand that the value is going to drop soon. Then you buy it back a month later for just $50 because it has lost its value. You just made an extra $50. Simplifying things a lot here but sure you see what we mean now.
This process is called shorting, or short selling – which have been up a lot in the last few days.
Like gambling, if your bet was wrong on the other hand and the price actually rises instead of falling, you’d lose money.
GameStop was one of the companies that a lot of hedge funds – companies who do these kind of bets; had bet on to lose a lot of value.
So in this case, a lot of people in the wallstreetbets Reddit forum swapped tips and bought shares in GameStop.
The demand raised its share price massively; no one saw this coming and everyone who had banked on it dropping in value like the hedge funds; had to buy their shares back.
One tweet from Elon Musk was enough to send the already in demand GameStop price soaring. He also linked to the Wall Street bets forum.
For a lot of people, it was payback – to make stockbrokers and hedge funds lose money. Threads on Reddit include people saying it was payback – taking revenge against the big money companies seen as causing the financial crash in 2008.
Some people on the forum said they donated their earnings to charity.