The GameStop Stock Shock

How Reddit is Changing Wall Street

The GameStop Stock Shock

Charles Daniel Norris, Staff Writer

This past week has been tumultuous for Wall Street as stocks like GameStop and AMC have skyrocketed in value due to alleged market manipulation by members of the online forum Reddit. On Thursday, January 28th, GameStop stock hit an all-time high of almost $500, up from only about $20 in January. The reason stocks would normally surge would be as a result of major announcements regarding business strategies or company announcements. However, that was not the case here. Rather, the reason for the surge was a concerted effort from a group of Redditors.  

The subreddit r/wallstreetbets is behind the increase in price. After lone investor Keith Gill made a post proposing the idea of an investment in GameStop, the community of about 6 million members banded together and sent the price of the stock skyrocketing. In other words, they pumped enormous amounts of money into the company in a relatively short amount of time, creating a price hike. 

The Redditors’ motivations vary. With just a quick glance at the Reddit forum, a variety of opinions already present themselves, notably from people who have now found a real “get rich quick” scheme through GameStop. However, a more vocal group seems to be the major endorser of the stocks. This group is filled with investors intent on sticking it to Wall Street. They were heavily hit in the 2008 financial crisis, and blame the ordeal on the top one percent’s use of hedge funds. Hedge funds are pooled investment funds run by a partnership of investors that uses high-risk methods such as borrowing money to invest and often require extravagant initial investments from each partner. Its investments are often determined by a computer program. In simpler terms, it’s an investment trust fund with a buy-in. 

In 2008, a then-deregulated market allowed banks to trade using hedge funds. This meant that banking, and everything associated with it, was much riskier. When hedge fund computer analysis told banks to invest in housing, they did so gladly. However, when those sectors lost money and housing lost value, the banks lost billions and even went out of business. Relatively the same thing has happened with GameStop. Rich investors bet against the stocks with their hedge funds en masse, and Redditors took notice. When the stock skyrocketed, the rich lost big. That is exactly the outcome the Redditors were hoping to achieve.

Capital High School student Meredith Morgan says she understands the frustration of the Redditors, pointing out that it’s usually the little people who end up as Wall Street’s biggest losers. It’s ‘rigged’ against lower and middle-class people,” Morgan says. “If the stock market crashes and you have your savings invested, you’re screwed, but if you’re a millionaire with dozens of accounts, you’re gonna be fine.” There have been questions of ethics and even talk of prosecution for the Redditors involved. “Depending on the original intention, it could be ethical or unethical,” says Morgan. “If they went in to just screw it over, then it’s unethical. But, it was an actual strategy I think. It’s really a zero-sum game, and they know the people on Wall Street will lose a lot of money and that they will gain a lot of money. I think it was probably a more ‘Stick it to them’ approach.” 

When this volatility was occurring, investment agency Robinhood halted buying of these volatile stocks, causing a public outcry and theories about the company being in league with Wall Street insiders. The answer as to why they did it is actually much simpler than many make it out to be. Many investors trade on margin, which is essentially a method of trading using borrowed money. This allows investors to buy more of a stock, and potentially make bigger gains. However, if a trader loses on a stock, they could potentially suffer even bigger losses and owe money they don’t actually have. A similar scenario happened with an amateur trader about 6 months ago, resulting in his suicide. These potential big losses for amateur investors prompted the agency to restrict the buying of the stocks until traders’ money had settled and their accounts had balanced out.

The Redditors have a lot more plans for Wall Street in the coming days, eyeing the precious metals market next. This small group on Reddit is trying to change the way Wall Street operates, and that could have major implications for the economy going forward.  Only time will tell.