This is what's happening with GameStop, Reddit and the stock market
EDMONTON -- Amateur online investors have rallied together and are having a huge impact on the stock market, driving up the value of GameStop up 1,900 per cent over the last three weeks.
The toe-to-toe battle with wealthy short-sellers is unusual, according to Bridget Casey, CEO of Money after Graduation.
"When you're investing in the stock market, you don't typically think of internet trolls as a risk of investing," Casey said on CTV Morning Live Edmonton. "This is the first time that it's come to light that users on Reddit or another social media platform can really manipulate the stock price.And regulators, hedge funds, everybody, no one knows what to do about this because we've never seen it before."
Casey says hedge funds have long been short-selling the video game retailer's stock, borrowing shares and selling them on the market at the current price, then buying them back when the price falls.
But the common practice got some fresh scrutiny from a savvy group of investors on Reddit.
"They all came together in this forum and said, 'Let's buy up as many shares as we can, we'll drive the price up and that will impact the short sellers.' They then took it one step further and actually called their brokerage accounts and said, 'Don't lend out my shares for trading,'" she explained. "What we ended up with was a lot of limited number of shares and there just wasn't enough to go around."
"The price kept going higher and higher and higher, and these hedge funds were forced to buy the shares back at a higher price than they had sold them and they are losing billions of dollars, like they're on the verge of bankruptcy and asking for bailouts right now because they're down so much cash," Casey said.
Online trading apps tried to stop the frenzy by halting access to GameStop stocks but were forced to back down.
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"People manipulating the market isn't a new thing but we've never had the power of social media to do it this way before," Casey said.
Getting in on the soaring stocks may be tempting, but Casey warns against investing.
"The stock fundamentals cannot upload this price. The only way it's going to go is down once this game plays out," she said.