By Diya Sadhu

Now that the dust has settled over the Wall Street GameStop debacle, let’s unpack what really happened here. To compare this to a sort of class revolution would not be an understatement. For years, the high class has dominated Wall Street, allowing the rich to get richer and the poor to remain static in their financial status. Market manipulation is a common practice on Wall Street. It is not uncommon for major hedge funds to unjustly exploit their influence and resources to generate massive income. While these companies thrive in their moral gray area, there are not exactly legal regulations which prohibit them from market manipulation. It is simply labeled as a byproduct of capitalism.

These injustices did not go unnoticed by people who frequented the Reddit app. The wildly popular social media outlet is home to a host of members of the WallStreetBets group. This is a community of traders on Wall Street who discuss their trading endeavors. Many of them had a shared interest in GameStop stock, mainly because of the nostalgic value it held. In early 2020, GameStop stock was essentially worthless at a share price of only $3. They had suffered a steep decline from their $50 share price in 2014. However, thanks to the increased faith of the Redittors, the stock jumped to around $20 as 2020 came to a close. The unprecedented comeback of GameStop intrigued the Wall Street hedge funds as they quickly took notice of the renewed price.

The attractive new price was not enough to restore complete faith in the stock, however. Some hedge fund's viewed that this was an inflated price and the stock was bound to fall again. This in-depth analysis of the market is often not available to the common trader which makes them vulnerable to manipulation by these hedge fund giants. And so the shorting of GameStop stock began. The hedge funds were essentially borrowing stocks and then selling them to people. Expecting that the price would return to its low original value, they hoped to then buy the stock back at the lower price. The profit they earned would often be at the loss of the common traders who bought the stock from them.

Unbeknownst to Wall Street, Redditors were concocting a plan of their own. Before the hedge funds were able to buy back the stocks at a lower price, they were going to make sure GameStop stock would rise so high in value, that the hedge funds would lose money. They instructed one another to buy and hold GameStop stock. Their plan was overwhelmingly successful as they were able to push the share price from $40 to $76 in a matter of three weeks. It even reached its height on January 28th, with a staggering price of $483. When it came time for the wealthy hedge funds to buy the stock back, many lost billions of dollars. Through the lens of a major Wall Street investor, this is devastating and perhaps even unfair. However, to see this from the perspective of a common trader, it is simply financial karma. Many argue that Wall Street has been practicing market manipulation for decades so why is it suddenly unjust when it was implemented by the common man.

SOURCES:  https://internationalbanker.com/brokerage/gamestop-what-happened-and-what-it-means/