Business Desk, ETV Bharat: The stocks of GameStop, which created extraordinary hype later last month, declined further on Thursday to close at USD 53.50. The stocks of the company have been going southwards after it hit the highest closing price of around USD 347 on January 27.
GameStop, a video-game retailer which has multiple stores in the US, created headlines when its share price rose by 1700 per cent at one certain point. The manifold increase in the stock price of the video-game retailer occurred when a group of amateur investors on Reddit decided to buy and subsequently raise the stock price of the company.
How did it start?
GameStop is a brick-and-mortar video-game retailer based in the US which has multiple stores across the country. The already stressed video-game retailer was hit hard when the world was struck by the coronavirus pandemic. The sales of GameStop declined as people prefered to shop online rather than buying video-games from a store.
With the health of the retailer worsening, investors indulged in short-selling the stock of GameStop, i.e. betting against the company.
In simple words, short selling is when an investor bets against the company or that the stock price of the company would decline. The investors would then borrow the stock of a company from a broker on the condition to return it back on a fixed due date. The investors sell the stocks in the market and then buy them back when the price of the stocks goes down.
Short selling is considered quite risky as investors can lose a lot of money if the price of the stock rises.
How did GameStop's stock price increase?
Wall Street Bets--a group of amateur investors on Reddit--noticed the short selling of GameStop's stock and decided to raise its stocks price. The investors in the group bought the shares of the company which led to the rise in the price of the company. Within days, the rise in the value of the stocks elevated to a dramatic 1700 per cent.
The stock price of the company further elevated when SpaceX and Tesla CEO, Elon Musk tweeted "GameStonk".
With the increase in the stock price of the company, many hedge-fund companies who had indulged in short selling of GameStop suffered massive loss.
The investors of the Reddit group say that their motive was not to make profit but to send a message to the "big" hedge companies.
Robinhood intervention
Observing the loss made by the hedge-fund companies, Robinhood--an online brokerage app--put a ban on the trading of stocks of GameStop.
This made the investors furious and accused the brokerage app of favouring certain hedge fund companies. The stock of the company has been falling since.
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