GameStop is one of America's chains of video-game-and-electronics stores that has very recently been in the news for some time. The tale starts more or less in early 2021 when certain Reddit users got active strangely around this stock.
A coordinated effort that retail investors started on a sub forum of Reddit called wall street bets kicked off the movement. Hedge funds were short selling GameStop because many investors believed that there was a bearish sentiment on stocks below $20. In short selling, investors would borrow a stock, short it, and buy it back when prices fall to repay the borrowed gain. Retail investors found an opportunity in a highly beaten-down GameStop price that hedge funds had put on it. So, Reddit users began a mass purchase of GameStop shares starting in January 2021, resulting in a spike in stock prices. A few other interesting things happened beside this providing retail investors with an opportunity to make money. In early 2021, GameStop stock started at around $20 but went on to increase sharply within weeks, crossing $300. This was the most critical part of the entire happening: the infamous Robinhood app. Many of the retail investors used this app for investing in stocks. But as GameStop shares began to increase very sharply in price, Robinhood unexpectedly restricted the buying of the GameStop stock, bringing dismay among investors. The company found itself in a series of lawsuits filed by several retail investors desiring to intervene in this. This whole affair had ripple effects beyond GameStop, prompting a rise for other video games and businesses like Ambra (AMC). The next clear break would see the retail investors on one side and Wall Street on the other, with professional investors and hedge funds on one side, also.
This event also created a lot of other questions in the financial markets, starting with whether or not retail investors can ever really come together to take on big investors. Do platforms like Robinhood hinder retail investors truly believing that? This incident also stirred some discussion among market perceptions and investment behavior. Even US Congress intervened and held hearings with hedge fund leaders and executives of Robinhood. It raised serious concerns about the adequacy of protection for retail investors against possible errors perpetrated by the rules and regulations in place on Wall Street and whether or not there must be some approach put in place to prevent erratic market behaviors. There have also been some documentaries on Netflix about the incident, further highlighting the depth and complexity of this matter. The GameStop incident not only rocked the realm of finance but also demonstrated how ordinary people could rise against humongous financial institutions. In summary, the message from the GameStop story reiterates the idea with concrete evidence: It is possible for ordinary investors to partake and influence the market.