Everything You Need to Know About the Gamestop Saga

By: Joshua Onyirimba

Last week we bore witness to an unprecedented battle between ameteur investors and the financial establishment. At the center of this debacle was...Gamestop

Gamestop, a brick and mortar video game retailer founded in Texas, went public in 2002. Since then, the video game industry in general has been trending towards digital purchases of these video games and Gamestop has been suffering losses (~795 million dollars lost in 2019).

First we have to learn the basics of shorting a stock. When institutional investors deem that a stock is overvalued, they can borrow shares from their brokerage, and sell them at the same value (you still owe the brokerage their shares). So if and when the price of the stock declines, they can buy them back at a lower price, sell the shares back to the brokerage and pocket the difference.

However in this case, the opposite happened, and the price increased after hedge funds had already taken these short positions, causing retail investors to earn large profits and some hedge funds losing large amounts of money. This occurrence is known as a Short Squeeze, “where heavy stock buying forces short bettors to buy shares of the stocks to limit their losses, therefore increasing the stock price even more.” (Jenna Telesca, Wall Street Journal)

Multiple high profile hedge funds with short books have been suffering double-digit losses as a result.

This can be accredited to thousands of members of r/WallStreetBets, an online community of ametuer individual traders founded in 2012 have been leading a standoff against Wall Street elite. Socially-fueled buying campaigns made “meme” stocks like Gamestop, AMC, and Nokia skyrocket. Notably Gamestop, and its ticker GME have seen a 1600% increase in share price in 2021.

Notable trading platforms such as Robinhood, E-Trade, and Webull held temporary restrictions on certain those particular symbols. Some brokerages raised margin requirements for those stocks to mitigate the risk. As a result, the price of the shares dropped, leaving investors shocked, angry and confused, bringing retail investing into an unprecedented level of social relevance.

We have seen a boom in the amateur trading world during the Covid-19 pandemic thanks to a few notable factors. The Covid-19 Pandemic which has caused volatile markets, free-time and isolation in lockdown, as well as the increased number of low-cost trading and accessible trading platforms.