So What’s the Deal with GameStop?

You may have heard some news about GameStop and the stock market in the last few weeks and wondered what was even going on. Therefore, I will try to describe the story in the clearest possible terms. GameStop is a company that runs stores that sell video games, consoles, and pretty much anything related to the gaming industry. GameStop’s stock prices were expected to fall from last year, but they did the exact opposite. How was this even possible? Well, a huge community of people on Reddit decided to mess with Wall Street.

There is one technical term that you need to know: “shorting.” Shorting is is when you buy something from somewhere, sell it somewhere else, let the price drop, and then buy it back for less than you sold it originally. For example, you buy a shirt from a friend for $50, then sell it to a store for $50. You return later on to find that no one wanted it, so the price has gone down to $20. Having short-sold it, you get to buy it for $20, and now you’ve made a $30 profit. Investors like to short sell stocks that they believe will decline in price.

The way this relates to GameStop has to do with hedge funds, which invest in riskier products and require large initial investments, meaning that only wealthy people can join. A group of Reddit users saw that some of those hedge funds, having considered GameStop’s business prospects rather dim, had shorted a ton of GameStop shares. These Reddit users decided to force these funds to fail, and when they bought a ton of GameStop shares, the value of the stock went up, meaning the wealthy investors had to buy back their shares for a higher price than they bought them from. Some hedge funds lost billions of dollars and required massive injections of capital to stay afloat.

Further controversy soon sprung up when Robinhood, an investment app, stopped permitting the buying of GameStop shares. A lot of people felt that Robinhood was “stealing from the poor and giving to the rich.” Ironically, this is the opposite of what the legendary Robin Hood did.

Since then, things have quieted down with GameStop, and its value has almost returned to normal, but the event shows either the true power of everyday people when they band together to show the wealthy what they can do or, alternatively, the way that the market (and, some might say, Robinhood) protects the rich.