Reddit forum page Wallstreetbets has become the engine that has fueled the stock war on wall street. Art by Nova Blanco-Rico.
By Jonathan Ghattas, Layout Assistant
As the Reddit war rages against Wall Street, the now extremely popular WallStreetBets subreddit forum has turned into the engine that has caused chaos in the financial world.
In what has turned into millions of Reddit users getting together to give a collective finger to billion-dollar hedge funds, video game company GameStop has been the hot topic as the stock became the target of WallStreetBets’ investors.
This momentum began last week on Wednesday, Jan. 27, when the aggressive buying of Gamestop stock began, causing it to skyrocket in price peaking at $483 at one point.
At the end of 2020, the stock was worth just under $20 as the company struggled to make profits during the pandemic despite the booming gaming industry.
The importance of this is due to the nature of the positions these hedge funds hold in their books, which included heavily shorting stock against companies like Gamestop, movie theater chain AMC Theatres, and Bed Bath and Beyond.
To short a stock means to sell stock against a company despite not owning any of their shares, essentially allowing a trader to sell something they do not physically own.
In order for a short seller to get out of this position, they would be required to purchase the stock back at the current value or risk losing even more money if the price continues to rise.
This meteoric rise in GameStop’s stock price has now put certain hedge funds under immense pressure to cover these short positions or risk losing billions of more dollars, or if the Reddit army has their way, go bankrupt.
In what appeared to be an attempt to prevent this from happening, trading platforms such as Robinhood, E-Trade, and others prevented customers from purchasing the stock last Thursday, before setting restrictions on particular stocks before the markets opened up Friday.
These restrictions included only allowing traders to purchase one share of GameStop, placing holds on new customer deposits, as well as preventing traders from piling up shares in other stocks that have been the target of the WallStreetBets forum.
Robinhood CEO Vlad Tenev claimed that the move was done to “protect the firm and protect customers.”
This unprecedented step taken by the trading platforms has furthermore raised questions and doubts about those on Wall Street willing to play by the rules.
The realization of being completely wiped out by a bunch of millennials posting memes and spamming “we like the stock” on a forum was quickly becoming a reality for these hedge funds.
As this financial revolt continues to play out for all to see, leaders on capitol hill have commented on the madness.
Democratic Rep. Alexandria Ocasio-Cortez has expressed interest in opening up an investigation as to why these platforms locked out traders for an extended period of time, while those on Wall Street continued to trade freely. Cortez tweeted, “This is unacceptable. We now need to know more about @RobinhoodApp’s decision to block retail investors from purchasing stock while hedge funds are freely able to trade the stock as they see fit.”
Congress has now said they plan to bring in the Robinhood CEO for testimony on February 18th following the aftermath over the companies restrictions on traders.
As of Tuesday morning, Robinhood eased their buying restrictions on GameStop as well as AMC and other stocks that had been targeted by the group. While the army of Reddit users were delivered a big blow over the last two days, with shares of GameStop tumbling over 200%, ending the day under $100 a share, the group only continues to grow and “hold the line.”