Article & Photo By: Emmanuel Vallarta
Late last January, an anomaly occurred. The working class played the elites’ game. Many people from the subreddit r/wallstreetbets, which has accumulated over 8.8 million members now, decided to buy shares from GameStop (GME), American Multi-Cinema Entertainment (AMC) and Bed Bath and Beyond (BBBY), among others. This caused their stock value to skyrocket, from being valued at a couple dollars to hundreds in some cases. Why is this important? Companies’ stocks rise and fall all the time, right? This occasion was special for many reasons. This short squeeze was only possible because the people at r/wallstreetbets united and bought stocks from these companies, which caused the price to rise. Second, many of these companies were being shorted by Hedge Funds, and the sudden short squeeze lost them a lot of money.
You may be thinking, what in the world does shorting a stock mean, and what’s a hedge fund? Let me put it simply. Shorting a stock means borrowing a stock from a company at a certain price which must be returned by a certain date. But by the time you return it, the stock is less valuable. For example, I borrow a stock from GME for $10, and by the time I return it, it’s only worth $5 dollars. I would have made $5 from this exchange. Imagine that, but with millions of dollars. Hedge Funds are alternative ways to invest, but usually limited to the wealthy. Some hedge funds lost millions, if not billions because of the GME short squeeze. Certain hedge funds were shorting these companies, and once the stock price went up and they had to return the stock at a greater price, further pushing the short squeeze.
Citadel Securities funded Melvin Capital, which was one of the funds heavily hurt by the short squeeze. Citadel Securities has ties with popular stock trading app, Robinhood. After the short squeeze became a trending topic, they coincidentally forbade the trading of stocks of the companies which were being short squeezed. This led to many class-action lawsuits being filed against them by users of the app. Congress woman Alexandria Ocasio-Cortez and Senator Ted Cruz both were discussing a bill to attack this wrongful behavior from Robinhood.
After the dust has settled, and the stock prices of the companies that were squeezed are dropping, what can we take away from this? First, The regular people of the world have more power over the stock market than anyone ever thought. Second, don’t underestimate the will of a couple million redditors, because they will make you end up losing billions of dollars.