Market manipulation is illegal and takes informational and transactional forms. Stock markets don’t run purely on a principle of ‘buyer beware’. Was this an illegal or unethical market manipulation which wronged the short selling hedge funds? Or is it just a case of caveat emptor the hedge funds got beaten at their own game? At some stage the price will correct leaving the speculators scrambling to get out with what they can. Of course, nearly everyone understood that this was risky speculation the fundamentals of GameStop as a company remained the same so it was very likely that the stock was now well-overvalued (despite some believing its real value is surprisingly high). there was a lot of potential fuel to add to the fire.Īs word got around the internet, more retail investors piled in seeing the opportunity to hurt hedge funds and/or make money from the expected boost in stock prices form short sellers buying their stock back. GME was fertile ground for a short squeeze because a high proportion of stock had been shorted – i.e. This adds fuel to the fire, further pushing up the stock price and tightening the squeeze for any remaining short sellers. If enough of them bought stock they would increase its price enough to ‘squeeze’ the short sellers into rebuying their stock to cut their losses. Then a group of retail investors in an online reddit forum WallStreetBets realised that there was an opportunity for a short squeeze (details here). The initial motivation to invest in GME was, apparently, based on the judgment (see here and here) that GameStop was undervalued so the short sellers had made a mistake. GME was shorted at ~$20 and, at time of writing, is currently valued at over $300. If a £1 share goes up to £100, for example, the short seller loses £99. The maximum one could make is if the stock becomes virtually w orthless (£1 in our example) but the losses are potentially unlimited because there is no upper limit on the stock value. If the stock went down in price (say to 70p), they make the difference (30p) but, if the stock goes up over that time, they lose the difference. At the end of the agreed borrowing time the short seller is obliged to return the stock it borrowed. When they think it has gone about as low as its going to go, they buy it back.
The short seller then waits for the price of the stock to go down. Short selling a stock is where you temporarily borrow a company’s stock and immediately sell it (say for £1). The stock appeared overvalued making it a good candidate for short selling.
A number of hedge funds predicted that GameStop’s stock (GME) price didn’t properly reflect the real trouble the company was in.
#GAMESTOP SQUEEZE DOWNLOAD#
In a familiar story for many retailers, it has come under pressure in recent times because people can order games to be delivered or simply download them the pandemic keeping people at home hasn’t helped either. The company at the centre of this drama is GameStop, a computer game and console retailer with brick and mortar stores. But what are the ethics of this? Did Average Joe Trader just bring a measure of justice to Wall Street? Or did the mob unethically manipulate the market? If they did, are their actions any more unethical than the usual behaviour of institutional investors? The phenomenon is anthropologically interesting because it is symbolic of a shift in power away from the traditional Wall Street players towards less wealthy, less well-connected individuals. This has caused hedge funds that shorted the stock to lose billions of dollars and enabled a number of retail investors to get rich in the process.
In doing so, the retail investors have driven up the price of those stocks. Recently a large, loosely coordinated group of individual ‘retail investors’ have been buying up stocks that certain hedge funds had bet against (i.e.
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