Joined: Oct 2015
Posts: 78
Complicated Simplicity
1/28/2021 at 2:16 PM
First off, stocks aren't really my thing. I am not advising anyone of anything except to be very, very cautious.
But, things are also moving very quickly. There are almost certainly going to be congressional hearings on this matter, and the US Securities & Exchange Commission (the SEC) also has yet to make their position known.
The crux of all of this revolves around a practice called 'Short Selling'. Short selling is basically like betting on something to fail. In the midst of a pandemic retail places are struggling.
Gamestop is at the center of this because it is a retailer struggling through the pandemic, and also struggling with the fact that it is becoming popular for so many video games (which is what Gamestop mostly deals in) to be purchased and downloaded directly from the console without having to go to a store. So, bluntly, Gamestop is in the process of going the same way movie rental places went. This makes it a prime short seller target.
What a short seller does is 'borrow' x amount of a company's stocks and then immediately sells them at the current market price. Then, when it comes time for the short seller to 'return' the stocks it borrowed, it buys back the stocks it previously sold at the (expected) then lower market price.
So a short seller borrows (it's not really borrowing, but it's a good euphemism for what actually happens) a stock worth $10 and then immediately sells it to someone else for $10. Then, when it comes time for them to return the stock the borrowed, they buy it back.
Now, what the short seller is banking on, is that this particular stock is trending downwards, so that when the time comes that they need to return the stock, they will be able to buy it back at a lower price (Let's say $7). So, at the end of this transaction, the short seller has made a $3 profit.
What's going on with Gamestop is that that the activities of short sellers were noticed, and the person who did this then informed a bunch of other people about this, so they all decided to buy as much Gamestop stock as they could and it's snowballed into what it is now. This has put pressure on the short sellers because if they bought their stock at $10, and now a stock is worth $450, and they need to buy it back to return it, they're going to lose $440 to do so.
For some, there certainly was some opportunity for profit, and maybe there still is, but as I said before, things are moving very, very quickly.
For others, it's also kind of a protest. Short sellers are typically things like hedge fund type investment firms. Basically the ultra-rich. So this has been an amazing opportunity to really sort of stick it to em' in a collective fashion and cost these hedge fund people, who are betting on a company to fail and profit from it, billions upon billions of dollars.
Currently, some brokerage firms aren't even allowing the buying of certain stocks (only selling) and there's even reports of one automatically selling people's stocks without their implicit permission (which may be allowed by their app's End User License Agreement and/or other complicated market rules...).
Edited by Hashidoi, 2021-01-28 14:23:49