If you are anything like me and have limited knowledge about the stock market, hearing about the GameStop all over the internet and news was very confusing. So, what is really going on in the stock market? Luckily, I did the homework of reading articles and watching newscasts for you and was able to break down what is happening as simply as I could. If you do not have any knowledge on how stocks work and how GameStop has affected the stock market, this article breaks down everything you need to know.
The stock market can be easily compared to a “casino” as stated by several Congress people. When you are at the casino, you place bets on games. When you win that game you win money, when you lose you lose money. Depending on how much money you risk in your bet can determine your vast winnings or losing it all. The bigger the risk, the bigger the consequence. This is what happens with stock investing.
With that general knowledge of how investing in stocks work, it is easier to break down what is happening in the stock market. This all began on Reddit in a sub-community called r/wallstreetbets. This forum has a large following with over 3 million subscribers and continuing to grow in popularity. The people behind this movement went about a “taste of your own medicine” or “eat the rich” kind of approach. The “bigger guys” who used the stock market which effected the “smaller guys”, finally got a cut of their loses, which large corporations are finally feeling the loss that everyone else has been feeling for years. So how did the “bigger guys” lose?
Advanced investors will bet on the failure of a company. If investors believe that a company is going to fail, they sell stocks while the prices are still high and if the prices of the stock continue to fall because the company is failing, they make a profit. However, if the stock price begins to rise then investors who have sold their stocks must buy more to make up for any money losses. This process is called a short selling.
This is where GameStop comes in. GameStop is a video game store that you can buy and sell your old video games. With the pandemic effecting many businesses, it is hard for a store like GameStop to adapt to a world pandemic especially with video games being bought online. Due to the prediction that the company was going to fail, investors began selling their stocks. However, Reddit users began buying into the stock causing the stock price to rise 8,000% over six months. This buy in caused these investors who were short selling to accept their loses which was about $23.6 billion dollars lost.
So, to answer the question everyone is dying to know, so what? Well, this obviously has investors at a loss. However, due to the reasons behind why people participated it seems as though the goal was achieved. To add, people who are new to investing are buying into stocks inflating the stock prices. The controversy over this topic is that advanced investors believe this to be an attack on the wealthy and that the smaller investors are using other incomes to buy out these stocks while low al while being at home. It is speculated that there are several companies that may follow the footsteps of GameStop in booting their stock prices.
Whether you agree or disagree with the controversy, this is a basic rundown of exactly happened and why it has so many people talking.