If you have even a passing interest in the stock market, chances are you’ve come across the story of GameStop (GME), which has seen the worlds of institutional finance and internet culture clash like never before. What started as a small speculative stock play by a group on Reddit has now transformed into an epic David-vs-Goliath showdown, as thousands of retail investors take on the might of huge hedge funds by “pumping” up the price of stocks that Wall Street had bet would fall, using what is known as a “short squeeze“.
The result has been nothing short of spectacular, with GameStop stocks rising over 10,000% in less than a year, and leaving respected hedge funds with losses in the billions of dollars.
But how much influence does Reddit have on the stock market, and which stocks are tipped by the Reddit community?
AMC Entertainment Holdings Inc (NYSE:AMC). The already-struggling cinema chain was hit hard by the pandemic, and was forced to issue millions of new shares to secure its financial future. Like with GME, Reddit and retail investors noticed heavy short pressure on the stock, leading to investors pushing the AMC stock price higher in an attempt to force another short squeeze.
Bed, Bath & Beyond (NASDAQ:BBBY). Continuing the theme of buying shares in struggling companies, WallStreetBets users appear to have pushed the price of BBBY shares up as well.
BlackBerry Ltd (NYSE:BB). Like AMC and BBBY, the BlackBerry share price has seemingly received a boost from its coverage on Reddit.
Tesla (NASDAQ:TSLA). A hugely popular pick with younger investors, like those that dominate WallStreetBets, Tesla has been one of the stock market’s best performers over the last few years, and rose over 1000% from its 2020 low, thanks to its appeal to retail investors, and its prominent place in the green economy.
Thanks to the media attention generated by the GME short squeeze, the Reddit investing community and other retail investors have been on the lookout for other stocks that have potentially been over-shorted, including:
As a bricks-and-mortar video game retailer, GameStop has struggled in recent years as many gamers turn to digital downloads or online purchases – a trend that was further exacerbated by the coronavirus pandemic.
The GME share price has similarly suffered in recent years, and shares were trading for as little as $3.25 in April 2020. However, a well-publicised investment by Chewy founder Ryan Cohen, who encouraged the company to pivot to becoming an online-focused retailer, helped the GME stock price recover in late 2020.
This attracted the attention of some users on WallStreetBets, which boasts millions of subscribers on the social platform Reddit. Around the same time, and expecting the revival to be short-lived, huge Wall Street hedge funds, including Melvin Capital and Citron Capital, opened large short positions against GME, which means they were effectively betting on the price of the stock going down. This culminated in shorters holding positions on more GME stocks than there are GME stocks in existence.
The WSB community soon caught on to this fact, and users encouraged each other to purchase GME stocks in order to drive the price higher, and perform what it known as a “short squeeze”. This meant that the hedge funds with large short positions on GME soon found themselves losing billions of dollars, and forced into actually buying GME to cover their position, further driving the GME stock price up.
On Thursday, 28 January, many popular trading apps and platforms halted trading on stocks such as GME, AMC and BB. This led to a huge backlash from investors, who found themselves locked out of buying and selling. These platforms included:
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Brokerage firm Robinhood came under intense scrutiny on Thursday after suspending buy orders on soaring stocks like GameStop, AMC and others. However, the firm announced it would reinstate trading on Friday after securing $1bn (£730m) funding in a week like no other on Wall Street.
GameStop enters trading halt on Robinhood as shares rocket over 2000% on the back of grassroots investment movement from Reddit forum
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