More than $ 6 billion has been lost from hedge funds in recent days as a result of a ‘protest’ action by small investors against capital market investment funds.
All the American media writes about what seems to be the subject of the year on the capital market. The Guardian deals extensively with the stock story of GamesStop:
“You may have noticed that the stock price of GameStop, a company operating in the US retail of computer games, has risen from $ 96.80 to $ 347.50 in the last three days – an increase of 359%. Or, more impressively, an increase of 10.692% compared to its price of 3.25 USD in April 2020. ”
Okay, but what is so unusual about this increase in stock? Here’s the deal:
In the capital market, there are investment funds that deal with investments in shares betting on the growth of these shares in the short and medium term. There are also some investment funds that make money by betting on a fall in stock prices. They sign a contract by which they undertake to buy the shares at a future date (when they consider that the shares will decrease significantly) and then sell them at the market price and from this difference they manage to make a lot of money.
The Guardian reports that GameStop shares were frequently targeted by these speculative short-term contracts before the frenzy, as a number of hedge funds bet that it would fall during the pandemic.
Why didn’t it go according to plan?
A group on the Reddit social network, r /Wallstreetbets, noticed that these shares were massively targeted by shorting and decided to buy shares to turn the plan upside down on investment funds.
The low price of the GameStop stock caused a large number of people with little money to buy many shares and thus increase their stock price. Some bought because they bet against the funds hoping to make a lot of money, others because they thought it was funny.
Robinhood’s action almost led to the bankruptcy of some hedge funds, to the delight of smaller investors on the Reddit online forum.
A lot of people praise the ‘protest’ because it punishes big hedge funds and traders, who have experienced more than the proverbial “bitter taste” these days. These funds have over time managed to manipulate the market and therefore the price of a share for their own benefit, inflating a share price only to sell it immediately after, or through shorting contracts.
Analysts expect, however, that this unprecedented protest will not go unpunished precisely to discourage such actions against the powerful Wall Street hedge funds in the future. President Biden, strongly supported by Wall Street lobby groups, will certainly have an appropriate response, because he will have no choice.
