#Gamestop squeeze how to#

Rather than a new occurrence brought about by the evolution of technology, these trading patterns are something caused by factors deeply rooted within human behavior, a concept known in behavioral finance as herding. Social media is not necessary for these types of trading patterns to occur.” The earliest examples go back to the price of Tulips in Holland in the 1600s. “As long as assets have been traded, some are susceptible to bubbles, periods of rapid price accumulation followed by price decrease.

“The situation described with the Gamestop stock is the story of a classic financial asset bubble,” Brown asserts. Though some, especially mainstream media, may point to social media platforms like Reddit and internet degeneracy as the cause for the Gamestop squeeze, Brown points out that such scenarios have existed long before the days of the internet. The topic quickly dominated conversations both on and off the internet, becoming nothing short of a financial phenomenon.

#Gamestop squeeze how to#

Word of the short squeeze made national headlines, with mainstream media outlets seemingly at a loss for how to assess the situation. Influencers even joined in on the fun, something that appeared to drive the stock price higher. Users on other platforms like Twitter and Instagram remarked on the absurdity and hilarity of the situation, eventually coming to rally behind the people on r/WallStreetBets. Though the movement to buy Gamestop shares began on Reddit, the scope of the situation quickly became bigger than anticipated. Several hedge funds even liquidated their short position as a direct result of the squeeze. The plan was largely successful, with users utilizing apps like Robinhood to buy up GameStop shares and forcing brokers to buy back the stock. In a short squeeze, if users are able to drive the price of a stock high enough, they can force hedge funds to liquidate their short position, driving the price even higher. They reasoned that this low price was due to shorting by hedge funds and planned what’s known as a “short squeeze.” People on the message board site Reddit took note of this, with users on r/WallStreetBets concluding the share price of Gamestop was lower than what was a reasonable value for the stock. This is a bet that the stock price will fall further in the future, but the initial selling also has the effect of lowering Gamestop’s share price.” “They took steps to heavily short the stock, essentially borrowing it to sell it with the obligation to buy back later. “Several hedge funds decided that Gamestop as a company would suffer financially because of the restrictions of the pandemic and rise of downloadable games,” Brown explained. There were several factors at work that allowed this situation to occur, according to behavioral economics professor Alex Brown from the Department of Economics at Texas A&M University. Perhaps the most important question is: Why Gamestop of all companies? Months later, people are still wondering what happened, what facilitated this seemingly unusual event occurring, and what does it mean for the future of finance operations. Gamestop trended on social media platforms for days, becoming a hot topic of discussion across all age groups and demographics. The company, who had recently been struggling to keep up with the demands of an ever-changing video game market, witnessed its stock prices climb from $4 to $400 seemingly overnight with little apparent rhyme or reason. Completely baffling the public and taking hedge funds by surprise was none other than video game retailer Gamestop, whose stock prices skyrocketed over a period of a few short days in a Reddit-driven frenzy. In the last days of January 2021, something strange happened on Wall Street that made the world pause and take notice. Economics professor Alex Brown explains how GameStop enthusiasts caused a short squeeze and what this could mean for the future of the stock market.