A short(ish) explanation of shorting stocks

Hedge funds can bet that stocks will go down in the future, and they do this to create capital and leverage to trade stocks they actually care about.

Technically, anyone can do this, its just typically a tool of the multibillion dollar hedge funds.

Currently, a bunch of everyday traders on reddit decided they think GameStop is actually still worth money. They have been buying the stock, causing the stock price to rise, and the hedgefunds to potentially lose their bet on the $GME stock to the tune of $13 billion.

Understandably, the SEC is following this debacle, but there really isn't anything illegal going on here. This may come into question in the future, but because this is a bunch of individuals that just happen to talk on reddit occasionally this doesn't meet the current definition of insider trading.

VERY IMPORTANT - do not take this as an investment tip, and *never* invest more than you have to lose

Shorting stocks may sound made up... and it kind of is, most things on the stock market are nowadays

All of these are predicted to decrease in price, AMC and even blackberry (lol) may be up next. Gamestop's in particular was appraised at a nonsense loss value of over 100% - meaning it was heavily heavily shorted.

Because shorted stocks haven't technically been "bought" yet, you can "buy" more than exist.

If this sounds ridiculous - it is. But that's the stockmarket for ya

The redditors who bought the stock are now in control (the squeeze) - they set the price they want to sell the stock at, and currently, it would sell for more money than the funds are worth

It's a game of chicken, but the redditors have no reason to blink first

GameStop won't be hurt by this either. The biggest potential negative is if Melvin goes under, pension plans could lose value, but the government has bailed these companies out for less than this before.

The stockmarket crash back in 2008 was the culmination of decades of bad loan practices in the housing market. This was just greed on behalf of the hedgefunds to make a quick profit - and they got called out.

They got their bailouts for far worse then but never really learned any lessons and have continued the high risk/high reward speculative trading practices...

The stockmarket is ALL speculative, and stocks haven't represented the worth of the company in a literal sense in decades

Tldr;

The rules are made up but the points definitely matter. By betting that GameStop would fail as a company, hedgefunds engaging in reckless stock shorting may lose billions of dollars because a community of redditors felt GameStop deserved a second chance

FP edit:

> I can't speak to the character of the redditors that sparked this whole thing, just that they are very much not a billion dollar hedgefund trading millions of stock. This has grown beyond reddit too, that's just where it started.

> If a government bailout is used, it will be with American tax dollars, but taxes are poorly spent all the time despite Wallstreet actually suffering some consequence this time

> this is more about beating the hedgefunds at their own game. Companies that make their profits manipulating the stock market in one form or other. They greedily (and stupidly) bought almost 140% of GME for a quick buck, something they do all the time in various ways. But this time their bluff got called, and in a big way.

> the housing market crash wasn't short stock trading. It was massively more compex than that, but i draw the comparison because that too was fueled by greed (from banks) but on a much much much larger scale

https://markets.businessinsider.com/news/stocks/gamestop-short-sellers-squeezed-losses-reddit-traders-army-cohen-palihapitiya-2021-1-1030006226