Short-Sellers Lose Estimated $70 Billion Following Reddit’s GameStop Stock Surge
The world has been shocked by GameSpot’s stock surge, and the movement has lost many short-sellers a lot of money.
Short-selling in the stock market may sound complicated, but it essentially means that someone has borrowed stock from a company to sell it on at a higher price before they buy it back at a lower price to return. The assumption is that the stock will lower in value while it is being loaned out, so when the investor buys it back at a cheaper price, they can keep the difference.
GameStop had many short-sell stocks, which meant people could quickly change the company’s value. This left Wall Street investors out of pocket as the stock they sold increased in value.
The purchases by the Reddit group WallStreetBets saw the value of GameStop reach new heights. As a result of short-sell investments in the company and other surprising areas, those in Wall Street who anticipated the stock to go down have lost a lot of money. In fact, they have lost an estimated $70 billion because of short-sell stock in various companies.
On the back of GameStop stock increasing tenfold in just seven days and the continued investments in short-sell stocks, financial data analytics firm Ortex has estimated that short-sellers have lost $70.87 billion on their investments. The company made this calculation through data collected from agent lenders, prime brokers, and broker-dealers.
This is a huge loss for Wall Street, and it seems to have been a deliberate reminder of the power of people.
One of the most popular comments on the forum sent out a message of rebellion:
Remember that scene from the Sopranos, where Tony’s wife calls to buy 5000 shares of Webonics, after she was manipulated emotionally to so? Institutions and hedge funds want us to be stuck in that world.
They’re scared of the future. They’re scared because, so much information is available for free now. There’s no more fees for trading. We have large communities that discuss stocks and trading openly. We can think and make decisions for ourselves, which scares the F*CK out of old school institutions and hedge funds.
It is clear that the group wanted to upset the status quo, and given the estimated $70 billion loss it seems that they have successfully done this. With that said, the group looks set to find new ways to take advantage of short selling as Nokia and Build-A-Bear see surges in stock purchases.
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