You probably heard about some “Fall of the Wall Street”, and some great investing scandal that has Gamestop company involved in it. You know all those things, but when you try to connect them, you fail to understand what actually happened.
Gamestop, Reddit, and Wall Street
The first thing that you need to know is about these three. About Wall Street, you probably know that it is some kind of a “capital city” of the stock market world. Then, Reddit is a social network, similar to Twitter, where people are writing and commenting about some topics. And, Gamestop is video games and gaming merchandise retailer. But what is their connection?
Like many similar companies, Gamestop faced great profit losses during the pandemic and especially due to lockdown. This triggered big investors from Wall Street to implement the “short-selling” strategy of investing (you can see more about it in our last article), which is, basically, a strategy that depends on the price falling of chosen stock. From that point of view, with Gamestop in trouble because of the crisis, it was natural that its stocks will drop. However, there is a whole section on Reddit that is dedicated to investing, where 4 million people are commenting. One of the hot topics was the Gamestop matter, which attracted a lot of attention of smaller investors, due to its “clear shot” description for big players which was highly connected to the company’s downfall. After this, those small investors banded together (via Reddit) and started buying Gamestop’s stocks. This huge demand made an expected economical effect which was, whenever demand grows, the price grows as well, which ultimately led to investors losing some serious money because the price of Gamestop’s stock got almost 10 times higher in just a few days.
This unexpected turn of the event made some huge effects. First of all, Wall Street is pretty much shaken, and a lot of the investors have to revise their budgets. Secondly, this will forever change the use of the short-selling strategy. And lastly, there is no telling how this will affect the global economy since all experts agree on the fact that it will go way beyond Wall Street. You can find out more about the effects here.