Hedge fund company loose millions of dollars to amateurs:
This is the stuff that books and movies are written about. Where David slays goliath. The internet has been used to prognosticate about stocks for decades, but there’s never been anything quite like the Reddit community called r/wallstreetbets, also known as WSB. To explain what happened you need to have a grasp on what short selling is.
For the most part, investors follow the “buy low, sell high” format when it comes to stocks. Short sellers do the opposite — they borrow and sell a stock when it’s high and bet that it will continue to fall. If that doesn’t happen and the stock price rises, short sellers are forced to cover their positions or buy more stocks — to minimize their losses. Because short sellers — frequently hedge funds — in essence are betting against a company’s success, it can be a risky position. Any positive news or enthusiasm for the stock will push up the stock’s valuation, minimizing profit for the short seller.
This has worked well for hedge funds over the years. But now investors tired of always loosing to the big boys decided enough was enough and backed a company by the name Gamestop. GameStop is a video game retailer. Like most stores that still sell products in person, it has had a hard time lately as video game sales have moved online and as the Covid-19 pandemic keeps people away from stores. It’s still in business, but few people expect it to grow again. The hedge fund companies decided to short this stock but investors decided to back it by buying more stock.
The speculative trading left short sellers with no more shares to buy to cover their positions, creating a short squeeze and leaving them with millions of dollars in stocks they had bought at a high price but which they then had to offload at an even higher price.
S3 Partners, a financial data company, said Wednesday that its analysis found that short sellers had lost $23.6 billion on GameStop this month.
This has brought an uproar on wall street as they are citing market manipulation and they want the regulator to step in and assist. The irony of this is they have been manipulating the market for years with no consequence
