Recently, the US stock market has been seeing some uncanny changes all due to the actions of members of an online Reddit forum, r/WallStreetBets (WSB). These fluctuations in the market have been so bizarre that experts at certain point had deemed that investing would be equivalent to gambling. But what does this all mean? What are changes in the market – what even is the market? These contemporary scenarios have left many with an array of questions, thus I will attempt to elucidate the confusion caused within this article.
First off, what is the stock market?
To invest in stocks is to buy a share or equity of a company. Depending on how big, or how many shares you purchase the price will vary. When the company in which you bought shares in does well, the market value of your stock goes higher. When the company does badly however, the value will decline. For this reason, investors aspire to buy shares when the market value is low, and sell them when the market value is high as this will inevitably produce profit. In order to predict the ascent of a certain stock, investors can study the market. Although the events unfolded in the past week have proven to be predominantly unpredictable; but why is this the case?
What are short sellers?
Short sellers are investors who ‘borrow’ equity/shares of a company from another investor and promise to return them at a set down date. If the market value of the stock was to decrease, the short seller would profit as he would sell them back at a lower price but be given the same rental as when he first bought them.
What has been happening with WallStreetBets?
As expressed, when a company does well, the value of its shares ascend. The stock at the focus of the current frenzy Is GameStop (GME), which rose from $18 at the beginning of the month to a high of $470 on January the 28th. This increase was driven by members of the internet forum/subreddit r/WallStreetBets (WSB) who intended to drive up the value of shares in GameStop by buying and holding stocks of the company. This was in an attempt to apply pressure to short sellers who bet on GameStop's’ bankruptcy. As a result, the short sellers have lost billions of dollars; Melvin Capital for example had to undergo an emergency cash injection of $2.75 billion to reimburse for the colossal losses. Such success by WallStreetBets is somewhat a result of Elon Musk, who has advertised the movement by tweeting about certain stocks in hope of amplifying them. One of his tweets regarding GameStop read, “GameStonk!"
For the most part, the occurrences in the stock market by WSB still haven’t ceased. Given that shifts in the market have been so rapid and random, it is safe to say that these contingencies are bound to continue at least for the following week.
