Stocks are pretty simple, when they go up in value, you make money, because it's worth more than you bought it for. Stock goes up- you make money. Stock goes down- you lose money. Short selling, is the opposite. Short selling makes money when the stock goes down in value.
So for example: Tim borrows Bob's shares in GME, and sell them for $10, he pays Bob $1 to do this, and promises to give all of Bob's shares back. Then, if the stock goes down to $5, Tim buys the shares back at a cheaper price. So Tim's profit is $10-$5-$1 = $4 profit.
So they shorted Gamestop (GME) from $20, to $10, to $4. Their greed kept compounding. They kept doing it again, and again, for months. Making billions of dollars, and almost bankrupting this company. (shares and share price are used as collateral for loans and access to capital).
Enter Wallstreetbets- A trading/investing subreddit. Someone noted that these hedgefunds shorted 140% of all shares available. These hedgefunds were so damn greedy, they borrowed more shares than actually existed. That's how arrogant and dumb they were.
They borrowed 140% of all the available shares. It was literally impossible for them to buy them all back. So someone on Wallstreetbets realized this, and told everyone. Now, the rule with short selling is that ALL those shares that they borrow, MUST be paid back.
And so we reach our main story of how the hedgefund's greed ruined them. Realizing that these hedgefunds shorted GME by a ridiculous amount, these Redditors (normal people like you and me), bought every share they could get their hands on. Driving the price up like crazy.
So for example, if they borrow 10 million shares, and sold them for $10. They made $100 million in immediate profit. But eventually, they HAD TO buy those million shares back. They didn't have a choice. That was the deal they made when they borrowed the shares.
So these Redditors bought the shares, driving the price up, forcing these hedgefunds to buy back at crazy prices. Yeah, the hedgefund sold and made $100 million, but now they had to spend $1.4798 BILLION getting those same shares back. A HUGE FUCKING LOSS of $1.3798 BILLION.
So eventually, the due date for when these hedgefunds need to return the borrowed shares comes closer. And what do they do? They double down. They short MORE. Because they're sure that they can manipulate the stock enough to get it to crash, thereby saving themselves.
Fast-forward a few days, every attempt to crash the stock fails. Everyone knows what theyre trying to do, so people keep buying the stock. And with every additional bit of media attention, more and more people are buying the stock, destroying the greedy hedgefund in the process
So now Hedgefunds are crying on literally every platform they can get their hands on. They want the government to stop trading. They want this reddit forum investigated and banned. They're screaming ''market manipulation'', when in reality these hedgefunds.....
were the ones manipulating the stock, but they got caught, and are now trying to take their ball and go home. While these hedgefunds are on every news channel screaming about Reddit and Wallstreetbets, they inevitably draw attention to themselves, and what's going on.
Enter the ''whales''- individual investors who can make a splash and impact the stock. Millionaires and billionaires that have a bone to pick with hedgefunds and short sellers. (whether you like these people or not is irrelevant, they're part of this story regardless)
Elon Musk hates short sellers, because they tried to cripple Tesla so often. With a single tweet, Elon sent the share price skyrocketing from $147.98 to $230. And along with Elon Musk, a huge number of wealthy ''whales'' have started to jump in. Buying up HUGE amounts of stock.
But these investors don't care. They don't care how expensive they buy the stock for. Because they KNOW these hedgefunds MUST buy the shares back. For many of them, they don't actually care if they lose money. They just want to watch these hedgefunds burn.
So what happens next? No one actually knows. As time goes on, and as hedgefunds fight to buy back as many shares as possible (driving up the prices more on each other), their bill will eventually be due, and they will have to return the borrowed shares.
that people are gambling that the hedgefunds will buy them for a higher price (they likely will, but up until what point?). It's a game of chicken. When the game ends, the house of cards will crumble, and people will lose millions. But until then, fuck the hedgefunds.
Here's a follow up thread, discussing possible impacts of this Reddit vs Hedgefunds fight. But at this point, it's all just guesswork.
So what will be the aftermath of this GME event? These are simply my guesses, I don't actually know. Wallstreet will likely push for licenses being necessary to trade, or put more limits on how many trades you can make, or some other way to screw the average person trading. 1/Show this thread