Stock Market Influenced by Reddit Groups

Recently Reddit groups like Robinhood which are based around the stock market have been investing in companies and that has been causing the stock to go way up. For example, in late March GME ( Game Stop) was at the lowest stock price it had been at since 2005 at about $2.30 a share. Due to video games becoming mostly digital and the ongoing pandemic Game Stop wasn’t in a good position. Then in January of this year,  the stock slowly started going up it wasn’t much but it was going up. On January 26th the stock was worth $146 which is the highest it had been ever and on January 27th it more than doubled and shot up to $347, and a day later it was down to $112 and incredibly on January 29th, it was up to $325. This was caused by something called a short squeeze and a gamma squeeze which both feed into each other and that was fueled by a somewhat coordinated investment by millions of investors on the Reddit page WallStBets.

A short squeeze is when you believe a stock is going to fall so you “borrow” share through your broker sell them right away and then “returning” them by buying at a lower price. Unlike owning a stock the amount you can make is limited but the amount you can lose is not. So for example if you short 1000 shares of GME at 30 dollars expecting it to go down to 27 dollars the next day. You would make $3,000, but what happened was that the stock shot up you would be losing $300,000 after spending $20,00 on the shares! That is a lot of money so investors were forced to cover and when a stock is being shorted a lot and it is driving the price up it becomes a fiasco of buying to cover the loss.

This isn’t the first time this has happened other Reddit group did a similar thing with AMC and multiple other companies. And even before the time of Reddit Volkswagen was subject to a similar situation. Overall some people lost a lot of money and some people probably made a large amount of money and it is rare to influence the market like this but when it does happen it is quite fascinating.

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