Think forward

WallstreetBets: The Reddit of the Market Investment Plan

Introduction

WallstreetBets is a grassroots organization created to increase public awareness about the high level of risk in the finance industry and promote democratic reform. WallstreetBets offers financial literacy resources, exposes predatory practices by banks and hedge funds, and advocates for greater accountability from investment firms.

Since the new year rolled in, the battle between amateur traders(WallStreetBets) and hedge funds(short-sellers), centered on the GameStop stocks, is becoming wider and more intense. It has turned the US, Europe, and Asia markets upside down and has everyone’s eyes on it.

The story is perplexing, but to state it in a few lines, GameStop’s rising shares have stirred tensions among the short seller (hedge funds) who used to profit from its dwindling stocks by short selling.

But, no more after a Reddit group dubbed as WallStreetBets jumped in and pushed the stock price. How they did it? Everything is coming ahead. But, note that this counterattack pressurized the short sellers(hedge funds)to purchase stock despite increasing prices, which they certainly not liked but had to resist massive losses.

WallstreetBets logo

What is GameStop?

GameStop is an American-based physical video game retailer. The company operates over 5000 stores across America and specializes in buying, selling, and trading video games and devices. However, digitalization has replaced such physical retailers for the last few years and put their survival at peril.  

In the strong competition with digital video games, GameStop struggled to survive. But the onset of the COVID-19 pandemic feeds to its misery. Due to persistent lockdown, people preferred playing digital video games, and GameStop lost its popularity among the masses; hence started its decline.

But even in this downfall, there were opportunities for short-sellers, who exploited the situation to their best to make some money. 

What is short selling?

Short selling involves making profits by borrowing stocks at cheaper rates and selling them at high prices. For example, if a company borrows a stock at $ 250 and sells it simultaneously, its value goes down to 150. After that, the company purchases a stock at 150 to return it to the lender and gain $ 100.

In this way, short-sellers pushed its shares down from $25 in 2017 to$5 in 2020 to profit from its misery. They continued to make profits unless a group of amateur day traders from the WallStreetbets entered the game to make some money and turn their game.  

What is WallStreetbets?

WallStreetBets is a Reddit group created to provide its members a forum to discuss stock and trading tips. Described as “like 4chan found a Bloomberg Terminal”, the group formed in 2012 could not get much attention initially.

Surprisingly, the community that could not even gather a million-member by the start of this year disrupted the financial market when it announced to buy GameStop stock.

How WallStreetbets increased the GameStop shares?

The group of traders led by a YouTube finance expert,” Roaring Kitty,” urged the people to join the community and purchase as much stock as possible. With every passing day, its participants increased exponentially, and on January 27, the community closed its door when members reached four million. 

The massive influx increased the GameStop shares by 130 % until the end of January. The soaring shares pressured the hedge funds to buy stock to cover their bets, causing them to lose huge sums. 

According to The Wall Street Journal, Melvin Capital, one of the short-sellers, experienced a 53% loss in January due to rising GameStop shares.

The community became increasingly popular within a few days, and 1 in every 40  Americans started talking about it. Soon after the reopening of WallStreetbets, it managed to get more than 8 million members and is still growing. According to the community’s moderators:

“We have got so many comments and submissions that we can’t possibly even read them all, let alone act on them.” 

amc

WallStreetbets also gain support from politicians and firm holders:

The sudden financial disruption also attracted the attention of White House Spokeswoman Jen Psaki. She said that the White House economic team also keeps a close eye on the ongoing market situation.

Meanwhile, Tesla founder Elon Musk proved to be a market mover whose tweets caused a massive surge in GameStop shares. Musk tweeted “Game stock” with a link to WallStreetBets to support the group that prompted about US$4 billion into GameStop.

As WallStreetbets wreaked havoc on short-sellers, they also managed to gain political support. Lawmakers and politicians both from the left and right-wing backed the community against the hedge funds, manipulating the stock market for many years for their gains.

Senator Elizabeth Warren demanded a thorough inspection saying that the hedge funds, private equity firms, and wealthy investors have treated the stock market as a personal casino. 

Robinhood decision faced massive public criticism:

However, GameStop shares’ stratospheric rise slowed down when a popular trading app” Robinhood” limited GameStop shares on February 4. Traders were allowed to buy just one share of GameStop instead of five. Robinhood restriction infuriated the app users, and they started giving the app a one-star review.

Politicians also raised their voices against halting the people from buying stocks. Rep. Rashida Tlaib called Robinhood’s move “beyond absurd” and called for a hearing on “Robinhood market manipulations.” She said that the app protects the hedge funds who used the stock market as a casino for their personal gains.

Rep. AOC also called on Congress to probe the Robinhood app after restricting small investors from purchasing shares. She also indicated to “support a hearing if necessary,” calling the Robinhood decision “unacceptable.”

As a result of criticism, Robinhood reversed its decision and allowed users to purchase GameStop’s stocks. The company’s co-founder, Vlad Tenev, claimed that they did not have enough money, so they had to halt the trading to protect their firm and customers. 

stocks

Wallstreets bets has an app

The new financial world is here. The Wall Street Bets app allows investors to see the big bets being made by hedge funds and other institutional players in real-time. Whether you are an activist, student, or just someone who wants a peek behind the curtain of high finance, this app has something for everyone.

Wall Street Bets provides users with information on which stocks are being bought and sold based on data from the New York Stock Exchange (NYSE) and Nasdaq stock exchanges. It also features a live scoreboard that tracks how much money different players have won or lost since the start of trading today as well as their cumulative net worth. Users can browse statistics about each player, including total assets under management (AUM), fund name,

Conclusion

A rising stock market is aligned with a growing economy. However, some traders called short-sellers borrow the stocks at lower prices and sell them to pocket the profit, causing the market to decline. When the WallStreetbets noticed that short sellers are continuously depressing some companies’ stocks, they decided to counterattack their tricks. By betting against the companies’ stock prices, WallStreetbets increased GameStop, Blackberry, and Nokia shares, which dwindled due to short selling.

See also  Amy Coney Barrett Political Views: Exploring the Perspective of An American Supreme Court Nominee
Viable Mode Enabled
Show Buttons
Hide Buttons