Wall Street’s Laughing Stock

Everyone has heard of the GameStop stock price skyrocketing and how it made Wall Street mad. To understand why Wall Street got mad and what happened, you need to understand what shorting a stock is.

“Shorting a stock is when you borrow shares of a stock from someone and then sell those shares for a profit,” senior and Stock Investment Club President Kapil Dheeriya said. “When a stock goes down, you can buy back those shares for a lower price. Because you have spent less on buying back those shares, you have made profit.” 

This means that Wall Street was betting on the price of GameStop shares to be worthless because you sell the stock and buy it in the future.

“You can get only as much money as you have sold a stock for, but the stock could go up hundreds of percent and you’ll lose a lot of money,” said Dheeriya. 

This is what happened to Wall Street hedge funds that were shorting the GameStop stock. They borrowed shares of stock for a price and then had to pay a much higher price after the stock price inflated.

The price of a stock can fluctuate due to many different market forces. If more people buy a stock than people sell that stock, the demand is, therefore, higher than the supply causing the price of that stock to go up. 

Other factors that can contribute to the price of a stock are the management and success of a company, the economy and the political climate. 

However, these were not to blame for the GameStop jump in the price of one share from around $20 at the start of January to $347 on Jan 27. The sudden jump in price was due to supply and demand for the stock. 

The demand for GameStop stock skyrocketed due to an online community trying to cause chaos for Wall Street and possibly make some profit. The idea started on a social media platform called Reddit, after members of the subreddit r/WallStreetBets decided to get back at the hedge funds that were shorting the stock. According to the financial analysis of the finance company S3 Partners, short-sellers have lost around $12.79 billion from GameStop so far in 2021.

Short sellers lost a lot of money on more stocks than just GameStop. Bed Bath and Beyond, AMC and BlackBerry are other companies whose stocks were short squeezed with the idea of hurting the hedge funds and making a profit. To a lesser degree, media coverage of the situation also contributed to the stock fiasco. 

Without hordes of people buying GameStop shares, the price would not have gone up significantly and therefore those betting against the stock would not have lost money. 

However, on platforms such as Reddit, many people were able to communicate and tell each other to buy the stock causing it to skyrocket. 

Due to traders selling their shares of the GameStop stock, the price has now returned to around $40 per share.

“The GameStop spike was a destructive attempt to punish Wall Street insiders who have manipulated the market with no punishment,” junior and Stock Investment Club Treasurer Ryan Hetchler said.