So you may of heard about the recent story involving Gamestop and the controversy surrounding the r/wallstreetbets subreddit.
So what happened is that these multi-billion dollar hedge funds - which are basically like the gangstas of the stock market, shorted - or bet against GME (Gamestop).
Shorting is essentially a trading strategy that speculates on the decline in a stock. It's when an investor borrows shares of a stock or other assets from a broker, that the investor believes will decrease in value by a set future date (the expiration date). The investor then sells these original shares that he/she borrowed to buyers willing to pay the market price. The investor then has enough money to pay back the broker he/she borrowed from (plus interest) with money left over (profit).
Now, there was a few things that changed which gave Gamestop an advantage;
The founder of chewy, Ryan Cohen, who is a billionaire and has experience in running e-commerce companies bought 9 million shares of Gamestop - roughly 13%
The previous COO & CMO (Alan Attal), the previous CFO (Jim Grube), and the Founder of Chewy (Ryan Cohen), all were appointed to Gamestops' board.
New consoles were being released
Gamestop signed a deal with Microsoft
Furthermore, the institutions that shorted Gamestop stocks decided to buy more short positions to defend their original shorts. Basically these investors saw that things were on the up for Gamestop, so they tried to buy even more short positions to suppress the stock price.
Overall, there were 71 million short positions and only 69 million shares - yes more short positions can exist than shares.
Now, people over on wallstreetbets realized that they could take advantage of the situation. They thought that if they bought up all the stock they could, in turn drive up the price of the stock - this is what you call a short squeeze.
Due to this, people with short positions desperately tried to buy the stock before the price went up too high. Now no matter what they were going to lose money, but they tried to prevent even bigger losses.
Stay tuned as the story gets even more interesting. Robinhood, which is a trading site used by many, eventually came to the aid of these hedge funds and started preventing retail investors from trading PUBLIC GAMESTOP STOCK. This was to protect Citadel, a multinational hedge fund with a vested interest in Robinhood, among other hedge funds. This is illegal.
People on Reddit played these hedge funds own game - beat them at it - and then the media, white house, etc all came to there aid to try and prevent them from losing money. Here is some alleged insider information (Important: No receipts to support the following claim)
There are also reports that Citadel reloaded some hedge fund shorts before they told Robinhood to stop trading Gamestop stocks.
