So what is all this noise about Gamestop? For the first time in the history of the US stock market, billionaires were crying their little hearts out, that the little guy won! The average Joe has shown that they can play the Wall Street game better than the professionals. The event that occurred during the past few weeks has shown that not only can you trade stocks, but that you have ample opportunity to get involved. However, you have to be careful as stocks are much like the volatile crocodiles that you see in the River Nile. Most of the stocks will be dormant, making small gains every other month. Others will rise up and then shoot down. They can be lying down not making a lot of noise until suddenly, they snap and take your arm off.
So what happened with GME?
The stock known as $GME was shorted by hundreds of investment firms. But wait a minute, before we continue, what is ‘shorted’?
A short position is when you purposefully buy a stock in the hopes that it will lose value. Yeah, that’s right, you’re spending money to buy something that you believe or hope, will be worth less in a few days or weeks. You have a set amount of time for how long you can hold onto the stock that you have bought from a broker, before you have to give it back. You sell the stock to someone else and then buy it back from them later on. The hope is the stock loses value, you then make a profit.
Right, now back to the event. A bunch of small-time beginner investors did a search for the most shorted stocks on the market and then started to buy them en masse. This meant that, if enough of them bought the Gamestop stock, that the standard supply and demand issue would mean the stock rises in price. So the shorter would have to pay you a higher price than what you bought the stock for. If you hold onto the stock, they will incur a fine for late returning of the stock they borrowed. The price goes higher and higher and eventually, someone will sell the stock back to the shorter for an obscenely high price. Those ‘smart’ investment firms will end up losing a huge amount of money. And yes, that is what happened. Investment firms that shorted GME stock lost BILLIONS!
What was the point of this?
Well, investment firms felt that they would pile into a company that was probably going to fail and buy the stock en masse. Gamestop is like other game wholesalers in that, they will need to adapt in order to beat the online market. This meant that GME stock was under a lot of pressure as investors veered away from what appeared to be a failing company, about to bite the dust.
As you can imagine, the online vigilante stock buyers felt that the investment firms were holding Gamestop’s head under water. It’s not nice to do this as you know! So it was kind of playing Wall Street’s game and beating them. Investment firms actually panicked and got apps like Robinhood that sold the GME stock to pause and hold off on selling any further. This has meant, industry regulators might be pushing for new rules as this is bordering on illegal activity.
The whole point of this event was, to kick investment managers in the teeth. Basically, sheer unabashed revenge.
How could you get involved?
Those that sold the GME stock back to the investment firms, did so when the stock was 1000% higher than when they bought it. That’s right, the stock was worth about $3 and then, it went to about $330 before selling started. In fact, at one point the stock was worth $347 when about two weeks before, it was worth about $40.
You could get involved by learning about trading stocks from what some have said is the best trading app. You get tutorial access, read niche and interesting articles, as well as the basic knowledge on what stocks are, why they are important and how you could make money every day. The key is to use the materials in the app to read up on various industries, patterns, and trends in the market. Learn about risk management in your stock choice. Many stocks are predictable and others are wilder. You need to be patient and read a lot before you buy any stock. And, always, always, only use money that you are willing to lose.
Will this start something?
As mentioned, this has become a very important moment in stock trading history. So much so, that it looks like the rules of trading could be enforced more often or perhaps new rules made in order to regulate market manipulation. The question is, who will the U.S. government choose to punish? There was an organized effort to buy stocks that were shorted, not any other. Is that okay? But, hundreds of investors bought GME stock just to watch it fail. They had no intention of seeing it grow. Essentially, they were all piling in, for a short-term buck. Is that okay?
The bottom line is, the Gamestop short event has taught us all that the little guy can win and when he does, the big guy won’t like it. So, regardless of what happens, you should be confident that you can win if you try. Trading is not a science, but it can be played like chess. If you can spot holes in the strategies of other investors, buying stocks that are being neglected or even targeted, you can make a killing.
You should take heed that you can trade stocks and it’s not always about studying charts and graphs. Sometimes, it’s about strategy against other stock buyers. It’s a great time to invest as many companies are rising and falling due to the pandemic and volatile patterns have become the norm.