This past year has been a year of hobbies. For some it was baking bread, others chose to take up the ancient art of the puzzle, and many found solace through gardening. However, the intrepid hobbyist yearned for another challenge – a hobby with substance, and that is how amateur day trading was born. Let’s learn more about the GameStop GME short squeeze below.
The majority of the population you have no idea how the American stock market works. Yet, with the recent increase in downtime, some people decided to invest their time in investing their money. Nowadays, you don’t have to live on Wall Street to engage in bullish tendencies. With platforms like Robinhood, many people are engaged on the market from the comfort of their own homes. Professional investors were not expecting this to happen.
The most popular word lately in stock trading jargon is probably shorting. This world rose to fame recently in the spotlight of the national craze known as GameStop. Even if you know nothing about the stock market more than likely you will have heard some of the controversy surrounding the GameStop Stock Craze.
Why the GME Short Squeeze Was Controversial
The main controversy that the GameStop Stock push showed was the disparity between the upper crust and middle man, however, while this is not old news GameStop showed us a unique facet of life: power in numbers. In order to explain this, we first must break down what actually happened.
In the practice known as shorting stockbrokers, they essentially sell stock that they do not own knowing that they can buy it back at a later time and pay less for it, therefore increasing their profit. This can be seen as immoral and illegal, but it is a practice that is very commonly exercised in our American stock exchange. Now, this is a very simple explanation for a very complicated process but knowing this will help you understand what comes next.
Another Important player
Mobile and accessible stock trading platforms such as Robinhood, were important players in the GameStop stock craze. These platforms allow the average person access to Wall Street. When a group of people got wind of what was going on through shorting they hatched a plan on social media.
They began to buy up all available shares of GameStop, therefore, causing a demand surge. The price skyrocketed and all of a sudden those Wall Street savants were feeling the heat. Now, they have promised this stock to their clients or brokers and they no longer have it. It costs three to five times more than what they sold them for.
While this sounds crazy, it is a fact of life. Now that we are cognizant of this process we can make active changes to stop it. We just have to understand what is happening with our market and with our money. Making smart decisions going forward and using group momentum is the only way we can ensure that we are safe.