A group of Reddit users, who talk about the stock exchange on social network forums, was responsible for the 144% increase in the shares of a physical store that sells games, GameStop. The bid started last Monday (25) as a kind of challenge to veteran Wall Street analysts, who were betting on the company’s value drop – as physical retailers are going through bad times with the pandemic.
In these, the story gained strength, and the forum crowd, called Wall Street Bets, spent the day buying papers from the gaming company. Result: The firm was the most traded asset in the world that day, going from USD 17 per share to USD 160, and breaking the legs of one of the funds it was selling, meaning it expected GameStop’s shares to lose value. Melvin Capital saw USD 3.75 billion disappear from its pocket and was forced to withdraw its position in GME. Yes, over 3 billion dollars lost due to a riot on Reddit.
How is this possible?
According to Rafael Arranz, a partner at Hold Investimentos, some firms have a lower volume of daily trades, so it is easier to manipulate paper prices.
“This is not uncommon. Today there are robots that play buy or sell orders, cancel these orders in milliseconds, and bring down or boost the stock price of certain companies. But this practice is illegal,” he said.
The difference in this story, however, is that it is a matter of retail investor bullshit against investment funds. For analyst Ed Moya, from Oanda, what happened to GameStop’s action is a reminder of how times are changing.
“There is a new army of traders, who are not experts in valuations, but in opportunities for momentum”
“You see that in Reddit, Youtubers, TikTok or Robinhood’s Wall Street bets,” he said in an interview with EFE.
It is worth mentioning that, with the GME super bullish, the New York Stock Exchange had to freeze its trading up to nine times before the stock plummeted and closed the day at almost USD 77 per share. A similar movement happened with other companies that are going through bad times, such as the AMC cinema chain, with Blackberry or the retailer Bed Bath & Beyond.
Another case that reflects the new behavior of investors, especially the younger ones, happened a few days ago when Elon Musk recommended the Signal message app on Twitter (we commented on this on Monday’s news) and an action that had nothing to do reached a peak of 1,100% over the next two days.