If enough WSB community members buy into a heavily shorted stock, demand and price will go up, and short sellers will be screwed into selling at ridiculously inflated prices. Fueled by this disdain for mainstream institutions, some WSB members devised a strategy. Short sellers, who capitalize on the failures of others, are public enemy number one. "It's fine to prop up zombie companies through Fed actions but if retail follows a path that greatly distorts asset prices by targeting short sellers, then this gets shut down.Members of WallStreetBets typically view Wall Street professionals as greedy predators. "The prospect of intervention here is clearly high, but this will just galvanise the community as it just brings home the feeling of inequality in financial markets," said Chris Weston, head of research at broker Pepperstone in Melbourne. Massachusetts state regulator William Galvin called on NYSE to suspend trading in GameStop for 30 days to allow a cooling-off period.
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This week's turmoil caught the attention of the White House, with President Joe Biden's economic team - including Treasury Secretary Janet Yellen on her first full day on the job on Wednesday - "monitoring the situation". The US Federal Reserve kept those taps firmly open at its latest meeting on Wednesday. The constant march upward of stock markets over the past decade, fuelled by a constant flow of newly created money from major central banks, has also made it less risky to bet on shares rising. Long derided by market professionals as "dumb money", the pack of traders, some of them former bankers working for themselves, has become an increasingly powerful force worth 20 per cent of equity orders last year, data from Swiss bank UBS showed. He said on Wednesday he had abandoned the bet. The war began last week when hedge fund short-seller Andrew Left of Citron Capital bet against GameStop and was met with a barrage of retail traders betting the other way.
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In one Reddit discussion, thousands of participants responded "We love this stock" to a post that called for more buying of GameStop and cast retail traders as Iron Man against a hedge fund Thanos in a nod to superhero movie "Avengers: Endgame." US Treasury Secretary 'monitoring' situation Short-sellers are sitting on estimated losses of $71 billion from their positions in US companies this year, data from analytics firm Ortex showed.Īs of Wednesday, there were loss-making short positions on more than 5,000 US firms. US equity markets rebounded more than 1 per cent in early Thursday trading US local time. On Wednesday, the short squeeze - where a rising stock price forces traders to abandon loss-making "short" bets that it will decline - fuelled a 2 per cent slide in New York's S&P 500 as investors sold other assets to cover their losses. "In terms of short interest being monitored, the US markets are probably the most transparent, but there's always room for improvement," former SEC chairman Jay Clayton told CNBC.
The dramatic jumps in the stock price of companies including GameStop, BlackBerry Ltd and AMC drew more calls for regulatory scrutiny. GameStop briefly became the biggest stock on the Russell 2000 index of small caps, according to Zerohedge. The Reddit crowd, with its use of call options and coordinated buying, has had a direct impact on the overall stock market.Ī basket of stocks traded mostly by hedge funds has fallen 2.5 per cent so far this year, while a basket tracking retail favourites jumped 13.5 per cent, data from Goldman Sachs showed. Shares in American Airlines soared 16 per cent. The universe of social media-driven stocks expanded, however. Other shares start to take off as hedge funds count losses The entrepreneur has also been cited as one catalyst for the rally, having been appointed to the GameStop board along with Alan Attal and Jim Grube who also bring e-commerce experience in an attempt to pivot the company away from physical stores to online sales and downloads. What is Gamestop and how did Reddit send its share price 'to the Moon'?īloomberg reports that he paid about $US76 million for his 9 million shares, which were worth more than $US1.7 billion at today's close of trade.