Hello Hive Fam!
A lot of retail or brick and mortar businesses are struggling right now and some big hedge funds saw that as an opportunity to short them - Gamestop being one of them.
a short basically means to bet against them… the problem is that they didn’t just short it… they OVER shorted them - by 40%. So for example if there were 100 million shares, the hedge funds shorted 140 million.… which doesn’t make sense…how can short a stock that doesn’t exist … but it’s all legal and is called naked short selling - which lets them sell a derivative of the stock - which is just a fancy word that means it derives its value from the existing stock… but doesn’t really exist.
So the hedge funds probably figured this will be easy, they can just kind of ride it into the ground.
But then… there was this forum of internet users on Reddit called wall street bets.
They pointed that these hedge funds were so overleveraged in this stock that all the Redditors would have to do is bump the stock price up enough to start cascading liquidations - which basically means the hedge funds bet wrong… so they would need to put up the equity to cover their position.
So that’s exactly what they did - they all got together and used their pulled collateral to buy GameStop stock or $GME and started making it go up, which created a chain reaction that led to the stock going from $5 to up to over $500 at one point.
Here’s where things get interesting.
In the midst of this rally, Robinhood (which was the platform a lot of these retail traders were using ) suddenly decides to halt purchases of GME so that you could no longer buy any more… all you could do is sell. Which totally changed everything.
This gave the hedge funds some time to regroup and figure out their next steps… so what would have happened if Robinhood hadn’t closed purchases on GME that day and halted that market momentum. What’s the fall out… what are the consequences… these are things that really need to be looked at.
but I think one thing that did come from that is collectively as a retail investing group - people have realized the power these hedge funds and investing platforms truly have over the market and that it may not always be a level playing field - which hopefully leads the way for more decentralized and open source solutions and innovations that are more peer to peer and can’t be shut down.
I hope you guys enjoy this explainer video/parody of the famous Margot Robbie scene from The Big Short!





