By:Khadija Nadeem Gr 9
I am sure that by now, everyone’s heard at least a little about Reddit’s manipulation of the stock market. When I came upon it, I was a little confused so after a little research, I’m going to explain it to you. First, let’s talk about definitions. What is a stock?
Well a stock refers to a share of ownership in a particular company. If you invest in a stock, you own that small fraction of that particular company. If a company is large enough, even that small fraction (often called a share) can be profitable. How does the stock market work? Shares can be traded, which means buyers and sellers are often making offers. Now once a price is agreed on, it becomes common knowledge that that share is worth that price. But there’s more. Buyers and sellers get to decide on whatever prices they want and that becomes tricky when there are thousands of electronic trades happening all the time. Next question, what’s Reddit? Reddit is an app used for social news and discussion. Members of the app submit content such as images, textposts, links you name it. This app is where things went down. Another term you’ll come across is hedge funds. Hedge funds are an alternative investment that maximizes profits and minimize risk.
Now what are we focusing in on? In this case, GameStop (a company), r/wallstreetbets (a channel on Reddit), Reddit’s rookie buyers and hedge funds. Now some investors love GameStop whereas others want to see the stock fall. So when GameStop appointed Ryah Cowen (an e-commerce veteran) to its board on January 11th, many hedge funds and Wall Street investors kept betting on company stocks to fall by “shorting it”. That’s when investors borrow a share then sell it and later if the price hits an expected value they buy the stock at a lower price and keep the difference. Now the game changer was when Reddit’s rookie buyers decided to side with GameStop, which was currently struggling. Why? Reddit’s discussion board claims that buying GameStop stock was about teaching short sellers, hedge funds and big financial firms a lesson. It was described as balancing out the influence with the financial elites. These same rookie buyers explain that they’re now looking for the next GameStop, the next company being taken advantage of by financial elites. Who do you think is next?
