Wall Street Basics
February 23, 2021
You may have noticed the recent commotion in the stock market and thought to yourself, “what is going on?” well, let me explain. A few weeks ago, a group of people got together on a website called reddit and discussed a plan. The plan was to find a stock with low cost and buy a ton of it, increasing the price and then selling it for a huge profit. And while than plan seems like a simple job it was anything but that.
But first, I will explain how it works. The Stock Market is a collective market where essentially, you can buy a small percentage of a company, also known as stocks. These stocks raise and lower in prices depending on several factors, but the main causes are how many people buy them, and the demand for them. You can also sell your stocks for a profit or loss depending on how well your investments did. Then There’s the more advance side, the people who bet millions and even billions on a company’s downfall. This is where the GameStop situation gets a bit sticky, but I will explain how they did it first.
At first it was easy, buy the stock at $14 each and raise the price. So, they did it. Stocks started to be bought, and the price went up. Then, it went up more, and not just a little bit but skyrocketed, to $100, then $200, then $300 and finally $483. It would have kept going up in price too if the government did not step in.
The government stepped in to make sure what was happening was all legal and within constraints. So, the stock market closed trading on the stocks, and investors had no choice but to sell while buying was closed. It all went downhill from there. Stock prices started to drop, and they kept dropping down to $139 as of 2/4/21. You can buy stocks again, but the price keeps dropping so it is not worth it.
Then, some new information came to light, some people in a hedge fund spent billions of dollars betting against GameStop and since the stock went way up, the hedge funds lost billions of dollars causing them to be upset. Redditors then got together and produced a theory that the stocks could not be bought because the hedge funds lost so much money. This, in turn, caused an outcry by the reddit group and they started posting everywhere “don’t sell! To the moon” because they wanted to raise prices and not let them drop to protest what they thought happened.
In the end, the protest was unsuccessful, and people sold their stocks in fear of losing money. Trading is normal again, but GameStop’s stocks are plummeting so fast that you would only lose money by buying them. And while the stock market was a topic of high concern, it is quickly going back to normal and fixing itself. There are still a few people buying GameStop stock and saying to hold the line, but their cries are far and few. But after the past few weeks, expect the stock market to be held on a closer watch, and for hedge funds to make less high risk bets.