In an unlikely turn of events this month, humble games retailer Gamestop has been caught in the middle of an spontaneous campaign protesting the practices of hedge fund managers in the stock market.
So what happened?
Let’s begin at the beginning. The campaign to raise Gamestop’s shares began on Reddit. The reddit thread is called “WallStreetBets’ and a place for anyone interested in talking about the stock market or trying to pick up some tips. The users of this Reddit thread came together and decided to sell the Wall Street short-sellers on stock a message through a mass online protest where they would encourage the buying of Gamestop shares to artificially raise the price. In this fashion, hedge fund managers who were shorting the stock had the potential to lose incredibly large sums of money.
Did it work?
The question of ‘Did it work?’ is a good one, and maybe we don’t quite know the answer yet. From an average of around $20 United States Dollars a share from Gamesop beginning in early October 2020, the stock price rose to a peak high of $357.51 United States Dollars on Wednesday 27th January 2021. Whilst prices reached a second peak of $325 United States Dollars on the 29th January 2021, they have since fallen and peaked again just over $100 United States Dollars since the end of February 2021. Whether the stock can be prevented from falling short ultimately remains to be seen.
But what is shorting anyway?
Shorting in a term most of us know from Hollywood films such as ‘The Big Short’ and ‘The Wolf of Wall Street’, yet our understanding of what the term actually means might not go much further than that. What shorting means is the selling of stock not owned by the seller, which ideally then drops in value and the seller can buy back the lower priced stock, which if there is a significant difference, means lots of profit.