Can anyone please describe the Robinhood and Reddit controversy in simple words? Or point to links that explain the gist of it in easy to understand language? .
I have the monthly family Zoom call tomorrow to India. Want to be able to talk a bit about it with my nieces and nephews. Go on judge me... but please also share some links about this Wall Street drama.
The cliff notes version is a toughie... however, why not give Robinhood app Knowledge Center a quick read ? Options Knowledge Center | Robinhood. Also investopedia What's the Difference Between Short Selling and Put Options?. This too: Robinhood, and its role in the GameStop saga, explained and this: Watch this video at 6:45 min.
Some Wall Street Hedge funds made a huge bet of some stock prices would go down:lot of people started buying those stocks on Reddit to intentionally drive the price up and because of that Hedge funds lost billions of dollars. You can watch Stephen Colbert video clip on youtube.
Wall Street hedge funds are on one side, and a lot of amateur investors are on the other. The leaders of amateur investors started mostly on a social media forum website called Reddit, which allows people to connect around ideas and interests they share. In a Reddit thread called 'WallStreetBets', an idea started by some particularly observant people. At the beginning of the pandemic, Wall Street hedge funds noticed retail companies were struggling. Due to pandemic GameStop, bed bath beyond, AMC were in big financial trouble. The hedge funds made a big bet that companies like GameStop were going to lose and go out of business.This is called a 'short sell.' The more GameStop's stock price went down, the more money the Wall Street Hedge funds like Melvin Capital raked in. Unfortunately for the hedge funds, the Redditors called their bluff. Beginning on Reddit with a few daring investors and then spilling out into many different social media platforms, the amateur investors convinced other people to buy GameStop's stock. GameStop's stock price went to the moon. In less than a week, the price went from around $30 per share to more than $340 per share. A few risky Reddit traders who started investing in GameStop in the summer of 2020 became millionaires, and a lot of average-joe traders made money too. However, there's the other side of the story. When GameStop's price jumped, more than 1000%, hedge funds that bet GameStop's stock would fail ended up paying out billions because they lost the bet. Mostly, investors are bought stocks through Robinhood app.
So much so for going off social media. I actually follow that subreddit. I would be a millionaire by now had I not gone on the social media purge! Robinhood is a stock trading app. It’s popular because it doesn’t charge for trading like fidelity et al. It made others stop charging per trade. Yaay robinhood. Thanks to robinhood lots of regular folks can trade. I was thinking of using Robin Hood to teach the teen a little but we aren’t there yet. Robinhood is important. It gives people like us, opportunity to trade stocks. Reddit - A social media platform like IL. It’s format is different. It has a ton of subreddits (sun forums). A subreddit called r/wallstreetbets is in the center of this controversy. I love Reddit. I also like to follow some stock tips on a few subreddits and follow r/wallstreetbets. A redditor called u/deepf***ingvalue decided to go on r/wallstreetbets and get your average joes to start buying GameStop stocks. GameStop has started losing charm because gaming now happens online apparently(thanks to covid). The stock price started soaring. Hedge fund investors who had it at that price started losing money. To stop stock sales they started trading before market opens and after closures. They started closing investments for GME stocks for Americans. Canadians got into the game. Asians started pumping millions of dollars into GME stocks to smoke out the hedge fund investors. The hedge funds started short selling to make the investors think it was tanking and pull out. Redditors held on. Wall Street bullies started dumping stocks back to back to make the price drop to make it seem like it was coming down. The redditors held on to the stocks. Unless all the investors sell their stocks hedge funds are going to get bankrupt. Their absolute value for GME was at a 115 bucks. It shouldn’t have crossed that. It’s hit 600 odd when I last checked(was at around 20 bucks last month). Redditors are refusing to sell. Robinhood the app the most people used started getting a lot of flak from Wall Street big guns because artificially inflating the price of a stock is apparently illegal. According to redditors, they are mathematicians, statisticians, scientists and are using mathematics and logic to buy stocks. They did it with AMC too. AMC was about to go bankrupt but got a lifeline. Hedge funds again lost money. The redditors have said they will not allow hedge fund managers to bankrupt companies or intimidate small investors. They are holding on until the price hits 4-5k bucks by which time the hedge funds they say will have to fold. Waiting and watching. I love these young redditors and their brains to do all this! My daughter told me I should never have stopped my morning Reddit browsing!
Added: @Rihana - Reddit also takes up A LOT of time. If you haven’t been there, stay away! Idhar hi kaafi time gaayab hota hai!
Wikipedia has a page on the GameStop short selling fiasco of hedge funds. When a whole lot of small investors can each buy ONE SHARE of the stock and hold it, and the hedge funds have already sold "more than the available number of shares" (140%!!), there is bound to be a short supply for the huge demand when the hedge funds try to buy back the shares they had already sold. When Robinhood app made it possible for small investors to do commission-free trading (buying or selling), and social media platforms like Reddit made it possible for people to get together and share information, the free market becomes REALLY FREE for everyone, not just the wealthy people. GameStop short squeeze - Wikipedia In January 2021, a short squeeze of American retailer GameStop stock and other securities took place on various stock exchanges, causing major financial consequences for certain hedge funds. The short squeeze increased the stock price of video game retailer GameStop by almost 190 times from its record low to nearly $500 per share on January 28, 2021, causing large losses for short sellers. Approximately 140% of GameStop shares had been sold short, and the rush to buy shares to cover those positions as the price rose caused the price to rise further. The short squeeze was initially triggered by users of the forumr/wallstreetbets on Reddit through commission-free trading apps such as Robinhood and Webull.
