A lot has been already written about what’s happening, but in case you haven’t seen it already, here’s the easiest way to understand what happened:
Some stock watchers on an online forum found that a hedge fund had promised to buy more shares than were out in the market in a bet that the company was going bankrupt((The process is called short sale, and the investor starts this transaction by selling a stock they do not own through their broker. This means that they start paying interest on the stock, but they’re going to sell at the current price and buy when the stock goes down. If the stock goes up, they still have to buy it, and at that point they would lose money.)). They decided to all buy the shares and make the price go up, which makes the hedge fund buy to limit their losses. Prices could keep going up until the person buying runs out of money or the whole thing breaks.
If you got in when GME was $2.00, and you owned a lot of these shares, you have made a lot of money. If you get in now, you may still make some money, as the forum predicts that this isn’t the end, and the “squeeze” has yet to come. What’s most interesting is that this is getting all sorts of coverage.
The reality is that GameStop will not stay at this high price. It doesn’t justify it, as the company hasn’t figured out how to transition away from retail stores to online. So what we’ve learned is that the market is like a casino and that stock prices can be manipulated. The house tries to rig the game so they always win, but this time they may not win. This is driving the hedge fund people bananas.
It got to the point that Robinhood, one of the apps helping the retail, or the regular Joe, trader place orders of GME would only allow sales. They were trying to save the hedge funds. That led to a lot of people yelling, a lawsuit, and people switching to other platforms. The SEC weighed in and said they would defend the retail investors.
What Happens Next?
No one knows what will happen next. There was talk that today was the day the hedge funds would have to buy to resolve, potentially making the stock go “to the moon” and then you’re done. Hedge fund people have been trying to lower the price by trading between each other and lower prices trying to drive it down, but then there are others driving it back up.
If you own a share or multiple shares, you would need to sell before the the hedge funds make their last buy– or at the top. Since you don’t know where that is, you have to figure out how much you can tolerate.
Many of the forum users are fine with ending up with nothing to make a point– plus they probably bought at the beginning, not later on. If you’re trying to ride it, figure out how high it will go… good luck. That’s the casino part of this.
Be smart, learn from this.