by Salsabeel Karam ‘22

GameStop is a video-game retailer that saw an unexpected rise in its stock price. The cause of this volatile market activity surrounding GameStop can be traced back to the forum Wall Street Bets (WSB) on Reddit. The forum is made up of amateur traders that share trading advice and memes. GameStop started getting the attention of investors when the company announced that Ryan Cohen and two additional directors would be joining its board (Faris; Phillips). This positive announcement seemed normal, so investors started buying the stock, but there was one problem: GameStop was heavily shorted by Wall Street professionals and hedge funds. 

Shorting a stock means that you borrow a stock that you do not think is going to do well, sell it and then wait for the price of the stock to decline to buy it back again. The decrease in price would be your profit. With strong demand to buy GameStop’s stock from the traders on WSB, the price of the stock started to increase and the hedge funds who were betting on its price to decrease lost around $19 billion (Li). During the first half of January, the price of GameStop’s stock ranged between $19 and $40. On January 27th the price reached $347 per share. The trading platform Robinhood limited trading transactions on GameStop’s stock, resulting in a lawsuit filed against Robinhood by investors (Alfonso III). With the increased spread of memes about GameStop and the news regarding Robinhood, investors also decided to buy other stocks of companies that have been heavily shorted such as Macy’s and AMC Entertainment (Phillips). 

These unprecedented market activities have raised a lot of questions about the transparency and strength of trading platforms and more importantly, about the fundamentals of trading and market activity.