The GameStop Shares Fiasco
Alex Rhodes explains how GameStop's shares are being bought by amateur traders... in the bath.
Alex - How did I get talked in to this…
You can’t say I’m not dedicated to the job
So GameStop was going down the pan a few weeks ago, because of coronavirus… people weren’t buying physical copies of games in the shop…
Hedge funds bet a lot of money on the fact that it was going to crumble by doing something called “shorting” the stock.
How does that work?
Shorting is where you borrow a share in the company that’s worth £10 let’s say… and sell it immediately for £10.
That’s more than I get paid for doing this job. Anyway, still paying attention? I’m in the bath so you’d better be!
When it’s time to actually pay the person you borrowed your share from, the value of the share has dropped to £7, so that’s how much you have to buy it for.
Well done, you just made £3. Because you sold it straight away for £10 remember.
But if the price of the share has gone up in value… you’ve got to pay the higher price. So you lose money. That’s what’s happening to these hedge fund managers…
Why is this happening? Well people on Reddit - that’s an internet forum - decided they didn’t like hedge funds betting against their favourite company, so they decided to buy loads of stocks…
In the latest development in the saga… several trading platforms froze people’s ability to buy stocks in GameStop, one of the first was called Robin Hood - that’s caused outrage… because it seemed like they were protecting the hedge fund managers’ money.
Got it? Good.
Margo Robbie eat your heart out.