The Story Behind Reddit Users Flying Gamestop Stock Review Game-Tech
In a report we shared with you yesterday, we stated that Wall Street was going through one of the toughest days in its history. Investors were manipulating Gamestop shares to rise astronomically. An organized Reddit community did all this.
During this exchange manipulation, a group of Reddit users, made up of individual investors, caused billions of dollars in losses from billions of dollars of investment funds. A Twitter user summarized how and why this important movement, which will go down in the stock market history, started with the flood titled “I explained the USA Stock Exchange-Reddit scramble ” in a way that even those who are not related to the financial world can understand.
Mutual funds earn profits by “borrowing” shares.
“Mutual funds borrow the stocks of companies with low stock market value (and expected to fall further) from their shareholders, using a method called“ short stock.” The unit he borrowed sells for $ 15, for example. The unit share in the account will fall to $ 5, the mutual fund will take back what it sold to 15, and $ 10 will remain in its pocket. “
After explaining how mutual funds earn money, Flood goes on to explain why this method does not apply to Gamestop manipulation:
“While a mutual fund called Melvin Capital tries to make money from the stocks of a company called GameStop, which has a share value of $ 16-17, with this ‘short stock’ method, things get complicated when a group of ordinary people realizes this on Reddit.
Organizing on Reddit, the group buys these shares and starts to increase the price. As the group expands, its share value increases, and when Elon Musk supports this group on Twitter, the share, which was $ 16-17 a few days ago, is currently selling at $ 347.
Increasing the value of stocks causes the borrowed shares not to be returned.
Flood explains why this manipulation is important and in what way it is “a first” :
“The Melvin investment fund, while an uber-rich fund of 12.5 billion, lost $ 5 billion in the past few days and declared bankruptcy. This is the first time. While the stock market is a system where the rich “play games,”; ordinary people organize and break this game in their favor. “
“Why is Melvin going down? Because the shares he sells are not actually his, they are all borrowed. He has to buy back the shares, but he can’t buy it because the price has skyrocketed. Therefore, it cannot return it to its owner. “
Stock trading practices stop trading one by one after the manipulation movement.
The cost of damaging the “big fish” by individual investors: Suspension of share trading:
“ Robinhood, the stock trading application used by Reddit residents, stopped the trading of stocks whose prices soared. Share prices crashed within minutes. People are turning to other applications: Webull, for example. ”
However, approximately 2 hours after this tweet, Webull also ceases AMC, GME, and KOSS shares. At this point, we can say that the statements of “serious” investors are also effective. For example, the net worth of 14.1 billion dollars, Steven Cohen, all of them share in a tweet that while there was “I like you, I’m trying to go,” he says. Yeah.
Robinhood sues in New York.
After Robinhood stopped trading the shares, a lawsuit called “Class action” is filed against New York state practice. Moreover, anyone who suffered from the closing of Gamestop shares for trading could be a party to the lawsuit. Also, some politicians are tweeting about the incident and demanding an investigation against the practice. Robinhood is starting to sell ordinary citizens’ shares without permission and at a far below value, following increasing pressure.
8 different companies affected by the cessation of trading
So how do mutual funds borrow stocks? The borrower’s mutual fund pays the price to the shareholder, usually on an annual basis, for the time it borrows. In other words, the shareholder rents his shares. However, the Reddit community’s organized action has caused the mutual funds that “lease” the shares to lose. The companies affected by the restrictions imposed during all these events were GameStop, AMC, BlackBerry, Bed Bath & Beyond, Express, Koss, Naked Brand, and Nokia.
It is said that the Robinhood application is under pressure even from the White House.
After all, eyes turned to Robinhood and Gamestop in Wall Street. In the investment world, Robinhood CEO Vlad Tenev made a statement, claiming that they stopped their share purchases without any pressure and made such a decision to protect their customers and the company. This is an important explanation because the allegations made while all these events were taking place indicated that the founders of Robinhood were pressured by large investment funds and the White House. It should also be noted that Google deleted the negative comments on the Robinhood application in the Play Store after the closing of the stock purchases.