What we do know is that all this activity appears to have created a "short squeeze," where the short sellers betting against GameStop are being forced to buy more GameStop stock to cover their losses. That pushed the price up even more, which forces more short sellers to cover their losses, which pushes the price up even more. Some of the Reddit crowd believe that GameStop stock could reach into the thousands of dollars just because of this mechanism. Here's what it means. When people buy a stock normally, they're betting it'll rise or share enough profits that they'll make more money than they put in.
Short sellers, or "shorts," do the opposite. Shorts trade with borrowed shares and sell them, with hopes they can make money if the stock falls in the future. Imagine Ian Corp. A "short" would borrow shares of Ian Corp. Their bet is that Ian Corp. If Ian Corp. That would mean the short effectively has to buy the shares at the new, higher price.
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When a short is right, betting against a company, they can make a lot of money. But if they're wrong, they can lose a lot more money too. The losses appear to be tremendous. It's also worth noting that GameStop began the year as one of the most shorted companies on the market. It is, but what's perhaps an even bigger indication of how dramatic these moves were, stock markets temporarily halted share trading for AMC, GameStop and other fast moving shares dozens of times since the drama began. See also: How to choose a credit card.
By Monday, Jan. The next day, it dropped by nearly half, only to rise back up. Amid all the chaos, the stock market temporarily halted GameStop share trading more than a dozen times some days because share price moves were wildly swinging by large amounts. On Feb. Part of what's driven this behavior is the popularity of retail investing, or when traders who aren't Wall Street professionals buy and sell stocks.
Echoes of Day Trading’s Heyday
Stock trading apps, often with no fees, have made it easy for people to jump into the market. And social media has helped people to rally together, egging one another on to buy more and more of a stock. For example, the value of silver jumped to eight-year highs on Monday, Feb. Big name trading apps like Robinhood , ETrade and others have reportedly struggled to remain online amid all the hysteria. TD Ameritrade on Jan. Robinhood has also come under particular scrutiny for appearing to severely restrict trades of some stocks while the market was wildly fluctuating that week.
Politicians on both sides of the aisle in the US have called for an investigation into the app maker. Meanwhile, many angry Redditors say they'll stop using Robinhood.
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Some have even threatened to join a class action lawsuit. Nasdaq said it will halt trading on a stock if it finds a link to unusual activity on social media. The company said it sees its role as a "self-regulatory organization" is to make sure its markets act in a "legitimate" way. Throughout the past week, the markets have temporarily halted trades of GameStop and AMC stocks in particular because of the wide price swings and heavy volume.
‘Dumb Money’ Is on GameStop, and It’s Beating Wall Street at Its Own Game
Last week, the White House and the Securities and Exchange Commission both indicated that the administration was reviewing what was happening. On Wednesday, Feb. Of the stock trading apps, Robinhood appeared to be the most aggressive in shutting down purchases of highly volatile stocks like GameStop and AMC. The company hasn't given clear reasons, other than vaguely saying it's working in the interest of users. But the US government may not agree. On Jan. The statement didn't mention Robinhood by name, but the commission said it would "closely review actions taken by regulated entities that may disadvantage investors or otherwise unduly inhibit their ability to trade certain securities.
Robinhood declined to comment about the SEC statement. That company, a clearinghouse that helps facilitate the transaction of stocks and cash between buyers and sellers, requires Robinhood and other trading companies it works with to have a specific amount of money in deposits each day to cover their customer's stock trades. That amount changes each day, based in part on market volatility. Robinhood said the increased share trading led its clearinghouse to demand Robinhood increase its deposits tenfold. The requirements were so large, it said, that it had to restrict trades in order to meet its requirements.
It has. A little over a month ago, on Dec. Robinhood made its name by offering stock trades without a standard commission that people often payed at other firms. The SEC said that between and , Robinhood made misleading statements and omissions, including "in FAQ pages on its website, about its largest revenue source when describing how it made money — namely, payments from trading firms in exchange for Robinhood sending its customer orders to those firms for execution, also known as 'payment for order flow.
GameStop didn't respond to a request for comment. BlackBerry executives told MarketWatch it was "not aware" of any reason for the recent trading activity. BlackBerry did reach a settlement with Facebook earlier this month over a patent fight , though the terms were not disclosed.
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There's the seeming easy money aspect, which is compelling in and of itself if you're that comfortable with risk. But some of them are also framing this as a crusade against Wall Street. Aside from being a prolific Twitter user, Musk has also recently learned he can drive people to various companies' stocks.
He tweeted about how much he enjoyed buying something for his dog off Etsy , and the stock jumped. Now he's tweeted about GameStop, stirring up more frenzy. Among other things, he also said we clearly hadn't learned from the financial crisis. This is bullshit. The Redditors aren't cheating, they're joining a party Wall Street insiders have been enjoying for years. Don't shut them down We've learned nothing from Love StewBeef. He spoke to The Wall Street Journal, telling his story about how he never expected this to happen. He posts a screenshot of his share values from his ETrade brokerage every trading day, in what he calls a YOLO "You only live once" update.
It is. Saturday Night Live, of course, got a good laugh over the whole thing when the comedy show lampooned the Reddit investors. Posts and comments are public, and those that receive the most positive votes, or "upvotes," from other users are featured most prominently. During the GameStop-trade saga, several Wall Street Bets posts with tens of thousands of upvotes have graced the pseudo-hall-of-fame page.
Countless users unfamiliar with Wall Street Bets have been exposed to its exuberance and high-risk, high-reward behavior, often through posts showing off multimillion-dollar gains on GameStop shares. The core behavior seen in the market isn't unheard of. Richard Smith, the CEO of the Foundation for the Study of Cycles, told Insider that GameStop's rally was "absolutely" a momentum trade, just one operating in a "very compressed time frame. The first few days of gains saw Wall Street Bets members cheer the rally and beg more to join in.
It's all fuel for the acceleration of these sentiment cycles. There's also financial gain to be had for those pursuing internet notoriety. Reddit users can award posts and comments with various virtual medals, many of which can be gifted only through the use of real-world currency. Sneering memes can pull in a few dollars' worth of awards. Others rake in small fortunes.