A major spike in the stock prices for brick-and-mortar video game retailer GameStop, fueled by day traders on social media website Reddit, has sent shockwaves through Wall Street this week.
By Wednesday, GameStop shares sold for as much as $380, up from about $18 at the beginning of 2021. This shot the company's market valuation up to $22.2 billion.
The prices were raised dramatically thanks to members of a popular Reddit group called "WallStreetBets," who first began buying stocks for the floundering company last August.
GameStop’s stocks had been struggling for a long time, as the company was losing money thanks to more video game sales moving online combined with a loss of foot traffic during a pandemic. Over 400 stores were closed in 2020, and the company owes half a billion dollars in both short and long-term debt.
This made it the target for hedge funds betting on the company's failure, by short selling shares. They could only make money on their moves if stocks continued to fall in price.
Instead, shares began slowly rebounding in the fall of 2020 after it was disclosed that Ryan Cohen, cofounder of ecommerce pet supply company Chewy.com, held a major stake in GameStop. Earlier this month the company named Cohen to its board.
The positive news coincided with Redditors actively buying more stocks, which caused the prices to keep going up, scaring some short sellers and forcing major investors to buy stocks at higher prices, also known as a “short squeeze.”
Trading got so volatile that it needed to be halted at least nine times Monday.
It has also caused more chaos throughout the week on Wall Street. Multiple hedge funds have said they’ve sustained major losses from the trading frenzy.
By Thursday, stock brokerage apps like Robinhood limited trading of these stock on their apps, by raising margin requirements and making it more difficult for average people to trade. Charles Schwab and TD Ameritrade tightened their requirements on Wednesday.
But the move to limit small investors brought a backlash from users and some politicians, including Rep. Alexandria Ocasio-Coretz, D-NY, who called the action “unacceptable.”
The U.S. Securities and Exchange Commission’s said it was monitoring the stock market situation, but it is not clear what regulators can do about cases like GameStop.
For some Redditors of the "WallStreetBets" group, the moment serves as stand for the small investor against major Wall Street firms.
One member writes in a post, “What I think is happening is that you guys are making such an impact that these fat cats are worried that they have to get up and put in work to earn a living.”
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