During the past few days, the American Stock Exchange witnessed a war of rising stock prices for GameStop video game stores.
GameStop stores lived very volatile periods, as the company was on the verge of collapse in 2020, but it witnessed a sharp rise in the price of its shares by as much as 1700% during the week from the date of writing this post, as major investors have betted billions of dollars on Game Stop shares will decline, but its stock has risen rapidly as it affected the American Stock Exchange, forcing investors to spend billions to cover their large losses. This prompted some members of the US Congress to conduct an investigation into investors and companies.
From collapse to prosperity …
GameStop stores lived volatile periods as the company was almost on the verge of collapse during the year 2020, but the company got a good boost, especially after Microsoft bought a percentage of the shares, which led to the company pushing the company slightly towards stability, then the price jumped His stock recently went from only $ 4 to $ 430!
This paradigm shift increased the value of the company to millions of dollars in one night. But what happened? How did that happen? What is the danger of this matter to the US economy and stock exchange?
By the start of 2021, GameStop stocks surprisingly jumped from just a few dollars a share to hundreds of dollars. This sudden jump in the stock market made the White House order to monitor the movement of the stock since all economic experts said that this increase is not real, but rather it is a fake and quick increase that will lead to the matter again to return to its true value, which will lead to a heavy loss for a very large number. Of the buyers and that any purchase of these shares at this high price is a losing gamble. In addition to the emergence of the new Corona virus, the company faced huge losses due to its inability to compete in the digital games market and its failure to keep pace with modern games as a result of the quarantine that required everyone, including the players, then electronic purchase methods began to appear little by little and digital games dominated the industry market until it targeted a segment Too big players.
But is GameStop the real disaster?
Most of those who control the Wall Street Stock Exchange are a group of rich people and owners of huge businesses, and these are concerned with their personal interests in the first place, and they have a view and forecast of the future conditions of the US stock exchange within days or months to come, enabling them to take all necessary precautions to ensure their profits, so that they are aware That the shares of a company will increase significantly in the coming days, and accordingly they begin to invest their money in it.
But since we are talking about a game that carries the win and loss in equal proportions, how can these investors go through this dangerous experience?
And the answer is; These investors use the short-selling ploy to control the American stock market and ensure their continuation in it despite it being a great risk for them.
So what is short-selling?
It is for the investor to sell a commercial stock or bond in the near future if he expects its price to drop – and that is before its acquisition – with the aim of buying it later at a lower value, thus achieving a profit equal to the difference between the short selling price and the purchase price minus the interest paid by the one who borrowed from it, and this is what happened in GameStop.
The example illustrates the article.
Selim, someone who knows about the music market, borrowed a music CD from his friend Ahmed, who bought it for $ 4, on the condition that he return it to him after a month. Saleem returns home and is selling this CD online for $ 3. But Slim expects from his knowledge of the market that the cylinder will be on the market again, but at only $ 2. Salim goes and buys a new cylinder for $ 2 and returns it to Ahmed. Thus, he gained one dollar, and this gain occurred as a result of the decrease in the price of the cylinder in the market. This is a short sale or an empty sale, because the seller did not own the cylinder, but took it as a loan from its owner, Ahmed. But it is possible that the price of the cylinder will not decrease in the market. So he has to buy a new CD for his owner for $ 4 in order to give it to Ahmed, and by that, he has lost a dollar.
Usually, the wealthy of Wall Street make this move in a big way, as one of them borrows (not buying) shares of a certain company and then sells them at a cheaper price, then waits for the value of the share to decrease further and bets on the loss of that company, and when this happens, he buys the value of the shares that he borrowed but This time, at a much cheaper price than the first time, then he returns the value that he borrowed to the shareholder in addition to the interest if it was agreed upon, and he keeps the price difference for himself and thus profits from it, and thus his profit is based on the loss of others.
But the problem is their loss …
As we mentioned in the example about the loss, if the investor is late in paying the loan, he must return the value of those shares in addition to an interest that increases with the passage of days. Therefore, it is in the interest of that investor to lose the company that he is betting on losing in order to cover the interest and get a profit for him, and if the opposite happened and the value of that company’s shares increased instead of their fall, then he must buy the value of the shares that he borrowed quickly and if he loses so that he can pay off his debt before the price increases The stock and the stock-buying process becomes, at that time, a losing process with huge sums of money lost.
But how does that investor make a profit without losing?
Wall Street rich people use a method called a hedge fund, or hedge fund, which is an investment fund that uses sophisticated investment policies to earn returns above average market returns without assuming the same level of risk. An example of such a policy is short selling.
Although the name of this type of funds suggests that it aims to reduce risks, the reality is that it aims to achieve the maximum possible profit, as it is based on ensuring a profit for the investor regardless of the fluctuations that may happen in the world markets. There are no restrictions on the fund manager from the regulators, and this is one of the strong points here.
But the response came …
Reddit is the fourth-ranked website in the United States of America, with various publications on various fields. A group of people on Reddit called WallStreetBets or WSB, which is a forum where participants discuss stock trading. The president of the forum urged his followers to buy the shares of GameStop stores to stop investors and bettors from losing them from achieving their goal until the matter turns against them to suffer then from paying the prices of shares and interest that will increase over time, which is what happened, as the company’s share price increased doubling, causing a heavy loss to investors In which.
- Smart innovative mask!
Elon Musk is the Assistant and CEO of Tesla Plants. He campaigned smart with his tweets that he hinted at his support for GameStop and that a borrowed stock cannot be sold! Musk tweeted one word “Gamestonk” and included his tweet with a link to the Wall Street Betting Forum on reddit. Gamestonk meant to combine the words GameStop and stonk which are used in the English language to denote a financial decision that ends in profits. This encouraged his followers to buy more shares to increase the company’s shares.
Whoever bet on GameStop’s loss tasted the loss when the stock price increased from a few dollars to more than $ 325 after Musk tweets.
Robin Hood’s surprising situation …
The “Robin Hood” application announced the easing of trading restrictions imposed on some US stocks, including the GameStop chain of stores, as it decided to raise the trading limits on GameStop shares by imposing restrictions on the ability of its customers to buy its shares after sharp increases in these shares as a result of people agreeing to buy them.
Gamestop’s stock rose significantly, reaching 1,600% in January, then lost a major loss after the Robin Hood app decided to buy it. Here, some members of the US Congress, including Mrs. Cortez, rejected what the “Robin Hood” platform had done and demanded a comprehensive investigation into the facts of the suspension of commercial transactions through the application, and then Wallstreetbets filed cases on the application out of the freedom to deal in shares and that it is a legitimate right for everyone. This attack on “Robin Hood” forced the application management to reverse the decision and correct the situation before it was too late.
Under American supervision …
A global confusion like this attracts the attention of the White House, as the US Treasury Department was ordered to monitor the sharp movements of some stocks traded in the market. White House Press Secretary “Jane Psaki” stated that the Secretary of the Treasury and others in the administration of the new President “Joe Biden” are monitoring the big moves in the stock “GameStop” and some other stocks. GameStop stock has recorded huge gains since the beginning of January amidst noticeable fluctuations in the share price on a daily basis.
Jim Stop … Where to?
Firstly, the GameStop party will end sooner or later. But the United States may enact new laws and set up a supervisory body for investors to determine their financial dealings on the American Stock Exchange, specifically those who use short selling to bring down companies – but it certainly will not prevent this type of sale – and it will limit dealing in the American Stock Exchange, especially during the coming period until the Game Stop trend ends and decreases. Its share price reached more than 40%, as it happened at the beginning of February, then it is fixed.
But … will we see a reaction at the end of the GameStop story of the battle between investors and hedge funds that happened almost out of nowhere last week, or will it be the beginning of empowering and increasing the number of those investors? Especially since what happened began to spread to the Asian and European side as well.