What’s going on with GameStop’s stock prices does not make any sense to many people, especially investors. The poor financial decisions and management led the GameStop stock prices to fall, which raised many professional investors’ concerns.
A 52-year-old individual/investor from Nevada wrote that “I just want my money back, but I know it’s gone.” He had invested $1.1 million in GameStop stocks and lost approximately $850,000 within a week.
It all started when many Reddit users pushed up the share prices of the video game retailer GameStop. This caught the attention of the expert Wall Street investors who predicted that the company was destined to fail.
Wall Street had bet against GameStop so much that at the time, it was considered one of the most heavily bet-against stocks on the market. So, when people in the Reddit community and WallStreetBets began pushing up GameStop’s share prices, it begins to cost investors billions of dollars.
The news of the GameStop stock price fluctuations has been shaking investors from Wall Street to regulators’ hallways to the White House in Washington.
Big names in the trading industry like Robinhood, Webull, and M1 have restricted their users to invest, trade, or buy GameStop stocks. These platforms did so to prevent their customers from losing money by investing in GameStop stocks.
Generally, it all boils down to the fact that the stock market trading, investing, or buying is pretty unpredictable. Considering the present situation of GameStop, people are raising questions about the instability of the stock market.
Moreover, since the new inexperienced generation is more prone to the stock market and they have these trading apps on their smartphones that can be used to trade — it is important to educate them about the potential risk of trading and how they can bring an individual to the point of bankruptcy leading to bad debt in the future.
Today in this article, Tekrevol will explain what’s happening to the stock, Reddit is involved or not, what’s a short, and pretty much everything Reddit, WallStreetBets, and GameStop related. Without any further ado, let’s start.
What Is Happening To The GameStop Stock Prices?
GameStop’s Stocks are observed to have constant fluctuations. Regardless of the fact that GameStop’s stocks went down to just $18 and then doubled in four days, it doubled in the next week on Tuesday and then kept on doubling till Wednesday and finally reached $347.51.
The next day (Thursday), the stocks gave back a chunk of those gains and closed at $193.60. These maniacal fluctuations in the shares of GameStop stocks are what’s causing chaos among the investors.
Did Anyone See This Coming?
Several analysts expected this outcome but not to this extent. However, brokerage platforms have made it pretty easier for the novices to tap into the trading market.
Since these platforms are offering direct trading, the broker commission has dropped significantly to zero. As several trading barriers have been minimized or removed from the playing field, consumer advocates suggest expanding the trading market to introduce new opportunities.
Moreover, when we speak of the GameStop stocks falling, we also consider that the stock market is highly unpredictable. The availability of such platforms could also encourage more inexperienced people to start trading, which is risky.
How’s The Company “GameStop” Really Doing?
We took the long route to research the company’s performance in the market. After reading numerous articles and listening to several interviews to determine how GameStop is performing in the business world, we concluded that GameStop is still struggling.
GameStop, a video game selling franchise based in Grapevine, Texas, sells video games at more than 5,000 stores. During the pandemic, the company decided to focus more on digital sales rather than opening their stores in order to comply with the lockdown SOPs. While the digital sales increased by 519%, the retail dropped to 30%, and the company started facing losses.
Amid the lockdown, the customers of GameStop were away from brick-and-mortar stores and started buying games online. We understand the digital world and what drives the customers when they’re opting to buy something online.
While the customers focused on buying games online from GameStop, they also came across several other stores offering the same games at a competitive price range. This may have also affected the digital sales of GameStop.
Furthermore, the customers’ interest has grown since the company has announced that a co-founder of Chewy will be joining the board.
This also gave heavy investors a hope that “Ryan Cohen” would somehow help GameStop with their digital transformation and skyrocket their sales to maintain the establishment’s sustainability. Still, however, financial analysts expect GameStop to lose money later on in 2021.
How Is Reddit Involved In The GameStop’s Stocks Decline?
Well, it may sound a bit bold but, Reddit is involved in the equation. Specifically speaking, those individuals in the “WallStreetBets” are involved. This platform encouraged several investors, big and small, to invest in GameStop’s stocks.
The platform itself acts as a common ground for investors, brokers, and traders to share information about the next big trade, self-deprecation, and appreciation.
So, when more experience and expert investors were encouraging each other to invest heavily in the GameStop stocks to push it higher, financial instability and heavy losses occurred due to the stock market’s unpredictability.
Another big reason for the stock’s unrealistic rise is because GameStop’s stock was hated by hedge funds and several investors on Wall Street. Numerous investors were betting on the Game Stop’s stock decline by “shorting” it.
So, What’s A Short?
Although we’re not a finance-related company, since we spoke about “Shorting a stock,” we will explain what this means. Generally, shorting is how investors make money even when a stock is declining/falling.
This process involves the borrowing of a share of GameStop and then selling it later. If the stock prices increase as the investor expected, he/she would sell it and keep the difference. Moreover, GameStop is one of the most heavily shorted stocks on Wall Street.
Do Investors Believe In GameStop Business?
This subject has been a center of attention and discussion purely because it inflicts pain on short-sellers, hedge funds, and other big names in the financial world. There’s always been a discussion about leveling the field between the elite investors and the short-sellers.
One user wrote on Reddit, “Isn’t about greed, after citing all the recessions “they” caused and the times “they” got bailed out with taxpayers’ dollars. “It’s about taking back what’s ours, what we’ve already paid for.”
What Is Margin And Option Trading?
Some ways enable investors to make big profits by making small payments upfront. If the stock moves in the right way, small investors can easily profit by pushing up GameStop.
When investors are opting for options trading, the investors can buy the stocks at a later date at a certain price. However, with Margin trading, investors can supercharge their gains or losses by leveraging the borrowed money.
If the stock somehow manages to hit the target, it can bring more increased returns than what would’ve been expected when an investor would’ve just bought a share. However, if it doesn’t reap the same reward, it would result in a total loss.
Wall Street’s Perspective On The Ending Of GME
The ending of GME, as per Wall Street’s estimation, is much lower. Over a while, Wall Street has pretty much analyzed GameStop’s probability of ever bouncing back from the heavy loss.
Because GameStop’s potential earnings, revenue, and profits are kept hidden, as of now, the financial analysts have estimated the GameStop prices to be below $15 by the end.
The stock market is constantly changing, and the constant fluctuations represent this change. The securities and exchange commission has already noticed all the market volatility, and they’re now taking a closer look at the situation.
Since it is SEC’s duty to protect investors and the expectations they have related to the stocks they’ve bought of GameStop at lofty prices. However, what gives this situation an unrealistic turn is the communication between the investors on Reddit.
They were convincing each other to push the GameStop higher. However, this cannot be considered market manipulation because there are several people involved.
There is no way to minimize the risk of people pushing a stock too high that it could cause severe potential damage. Moreover, the only way to minimize losing everything is by educating the new and novice investors to invest smartly.