![]() These circumstances have only added to the widespread frustrations aimed at those who have been deemed as thriving at a time crisis through opaque means at the expense of ordinary individuals.Īs such, the idea is that If long-holding retail investors refuse to sell their shares, the hedge funds involved in short selling will have no choice but to sell other shares in their portfolio in order to cover and buy GameStop shares to fulfill their obligations. The economic devastation brought about by COVID-19 lockdowns has placed many individuals in situations of unprecedented financial insecurity. It is this combative attitude towards the short squeeze and its characterization as a war between Main Street and Wall Street that has captured the imagination of commentators from across the political spectrum. ![]() Nevertheless, many retail investors are resolute in their determination to hold on and deliberately cause the Wall Street establishment to lose as much as possible, regardless of the risk they incur. However, since GameStock shares cannot remain at such an inflated price indefinitely, as with any bubble, those retail investors who do not sell soon enough will face losing the bulk of their investment. Many small investors have made significant profits from the GameStop short squeeze, at the expense of hedge fund managers who have hemorrhaged billions of dollars. ![]() They drove the price of shares up to as high as $347, on January 27, after these same shares had been traded steadily for around $4 for much of the past year. In response to the short selling of GameStop shares by hedge fund managers, the retail investors on Reddit started to invest en masse. The short squeeze: Main Street vs Wall Street However, these investors did not take into account the affection held for GameStop by many in the r/WallStreetBets community, who saw their shorting of the company as a predatory attempt to profit off a struggling company while running it into the ground.įurthermore, after Ryan Cohen, an activist investor, bought 10% of the company and joined the board, retail investors became increasingly confident that GameStop’s fortunes would turn around and that the hedge fund shorts would be proven to be wrong. Investors then return the borrowed shares having made a profit. This process involves borrowing and selling shares before subsequently buying them back at a lower price, or covering. Institutional investors, predicting this downward trend to continue, began short selling GameStop shares. Correspondingly, the value of GameStop stocks had been decreasing. With the rise of online services, demand for physical games has decreased dramatically.ĭespite efforts to turn the company’s fortunes around, GameStop has struggled to adapt and has incurred significant financial losses over the past five years. The company enjoyed considerable success before falling into decline, since the mid-2010s, due to changes in market conditions. ![]() GameStop is a video game and consumer electronics retailer founded in 1984, operating under its current name since 1999. GameStop: a once-thriving company that has struggled to adapt While the motivations and tactics of the GameStop short squeeze have drawn criticism in some circles, it would appear as though the retail investors responsible have enjoyed widespread praise and support from across the political spectrum.Īs such, it is interesting to consider how this unusual scenario came to be, as well as what potential legacy it may have in terms of the democratization of the stock market. Such decisions drew significant condemnation from political figures. Several controversies have emerged following the short squeeze, particularly in relation to the decisions of financial services companies to restrict trading. The situation developed as retail investors on r/WallStreetBets, a subreddit dedicated to discussing stock and option trading, initiated a short squeeze on GameStop. In an age of extreme political polarization, the GameStop short squeeze of late January 2021 has managed to bring together prominent figures and commentators of opposing ideologies behind a single cause.
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