You’ve probably come across the terms GameStop, Reddit and Wall street while staring at your screens wondering what on earth is that and why is everyone talking about it?
Well, worry not, we’re here to walk you through what they are and why they’re trending?
What Is GameStop?
GameStop is a video game retailer in the US that wasn’t doing so well due to the pandemic. With little people going out in the malls and most of them making purchases online, GameStop was having a hard time surviving.
What Is Reddit and What’s It Got To Do With GameStop?
Reddit is a social media platform where people pick topics of their liking and join their page.
Basically, individual juvenile investors joined a page on Reddit called the Wallstreetbets. This is a hugely popular page on the site with around four million followers. To teach the sophisticated Wall Street traders a lesson, investors on Reddit planned to join forces to bring up GameStop’s shares.
What Did They Do & How Did That Happen?
Yeah, we know it’s still very confusing and you must be bewildered after what you just read. Hang on, we’ll break it down for you.
So what traders do is that they look up companies that aren’t doing so well and then place bets on them, assuming that their shares will drop down in the future. This is good for them as they earn profit later on. Let me tell you how.
Suppose you borrow gold biscuits from a friend and agree to give them back later in two months because you feel their price will drop.
Then you sell those at a price of Rs. 5000 assuming that the price will fall. Later people find it boring and lose interest. You buy them back at a price of Rs. 3000. So, basically you’ve made a profit of Rs. 2000.
This thing is called shorting or short-selling i.e. where you place bets on something that is bound to lose value over time. If, however, the prices go up you lose money.
Here’s where GameStop and Reddit come in. GameStop was that gold biscuit that the betting companies (hedge fund companies) placed their bets on, assuming it will lose value.
So these investors at Wallstreetbets on Reddit joined forces to buy shares in GameStop. This made its shares go up astronomically.