Important!
This last week thousands of people did something incredible. They bought GameStop stocks. Doesn't sounds incredible? Well keep reading.
As insane as it sounds, simply by doing that they collectively made a giant hedge fund go bankrupt by losing them more than they were worth (13.1 billion!) The multitude of buyers themselves made lots of money doing this (some becoming millionaires!)
Overall the losses for big wall-street are at $91 Billion as of 2 days ago! https://www.cnbc.com/2021/01/26/short-sellers-are-down-91-billion-in-january-as-gamestop-leads-squeeze-in-stocks-they-bet-against.html
How did this happen? It's confusing, but I found an image explanation https://twitter.com/elonmusk/status/1354954300041080835 even that is a bit hard to follow so I'll try and explain it below even simpler.
This all happened because of an absurd practice called 'short' in trading.
A 'short' is when someone borrows a stock from a broker only to sell it instantly. Despite how insane that sounds, yes, they can sell things they don't own but are only borrowing.
They sell what they have borrowed because they expect the stock's price will fall before they have to give the stock back. If the stock's price does indeed fall then when they give back the stock (buying the stock at the new lower price) they make the difference.
Example: Let's say I want to short GameStop, let's pretend their current price is $10. I borrow 1 share of GameStop and sell that borrowed share instantly at the current price $10 (Shorting) I then would no longer have the borrowed stock, but instead I'd have 10$ in physical cash but I also owe my broker 1 share.
So then, if before giving my broker back that 1 share the price goes down by 3$ then thru this arrangement I've made 3$ when I buy that 1 share at the new price of 7$. However if that price increase to say 13$ then I've lost 3$ when I am forced to give back the share I've borrowed.
This is what happened with GameStop.
A few weeks ago a redditor on r/Wallstreetbets noticed that a hedge fund had taken a massive amount of short trades against Gamestop. They convinced everyone on the thread to join forces and buy (not borrow) as much gamestop stock as possible. This made the gamestop shares prices rise dramatically. The hedge fund in the short position quickly owed more than the 13.1 billion they were worth!
The hedge fund then had to return the borrowed Gamestop shares back at higher prices, which as they bought of course only sent the stock prices up even further! (making the redditors money!)
This is called a 'short squeeze' - now the hedge fund is declaring bankruptcy and the reddit thread is combing through other hedge funds with massive short exposure so they can short squeeze them all into bankruptcy as well. All of wall street is saying the public joining together in this fashion should be illegal, but really they just lost their own game to the masses.
This last week thousands of people did something incredible. They bought GameStop stocks. Doesn't sounds incredible? Well keep reading.
As insane as it sounds, simply by doing that they collectively made a giant hedge fund go bankrupt by losing them more than they were worth (13.1 billion!) The multitude of buyers themselves made lots of money doing this (some becoming millionaires!)
Overall the losses for big wall-street are at $91 Billion as of 2 days ago! https://www.cnbc.com/2021/01/26/short-sellers-are-down-91-billion-in-january-as-gamestop-leads-squeeze-in-stocks-they-bet-against.html
How did this happen? It's confusing, but I found an image explanation https://twitter.com/elonmusk/status/1354954300041080835 even that is a bit hard to follow so I'll try and explain it below even simpler.
This all happened because of an absurd practice called 'short' in trading.
A 'short' is when someone borrows a stock from a broker only to sell it instantly. Despite how insane that sounds, yes, they can sell things they don't own but are only borrowing.
They sell what they have borrowed because they expect the stock's price will fall before they have to give the stock back. If the stock's price does indeed fall then when they give back the stock (buying the stock at the new lower price) they make the difference.
Example: Let's say I want to short GameStop, let's pretend their current price is $10. I borrow 1 share of GameStop and sell that borrowed share instantly at the current price $10 (Shorting) I then would no longer have the borrowed stock, but instead I'd have 10$ in physical cash but I also owe my broker 1 share.
So then, if before giving my broker back that 1 share the price goes down by 3$ then thru this arrangement I've made 3$ when I buy that 1 share at the new price of 7$. However if that price increase to say 13$ then I've lost 3$ when I am forced to give back the share I've borrowed.
This is what happened with GameStop.
A few weeks ago a redditor on r/Wallstreetbets noticed that a hedge fund had taken a massive amount of short trades against Gamestop. They convinced everyone on the thread to join forces and buy (not borrow) as much gamestop stock as possible. This made the gamestop shares prices rise dramatically. The hedge fund in the short position quickly owed more than the 13.1 billion they were worth!
The hedge fund then had to return the borrowed Gamestop shares back at higher prices, which as they bought of course only sent the stock prices up even further! (making the redditors money!)
This is called a 'short squeeze' - now the hedge fund is declaring bankruptcy and the reddit thread is combing through other hedge funds with massive short exposure so they can short squeeze them all into bankruptcy as well. All of wall street is saying the public joining together in this fashion should be illegal, but really they just lost their own game to the masses.
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