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The company fundamentals are in no way impacted by this stock market chicanery, analysts say.
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Much of professional Wall Street does not think that GameStop's stock can hold onto its gains, to put it mildly. Done en masse, this sent the already-overvalued stock prices soaring higher still, ready for the amateurs to sell their papers and cash in. This in turn forced hedge funds to cut their losses post-haste, liquidating their contracts by buying back shares they owed in the company and selling them one last time. By joining forces to buy up GameStop stock, they were able to ruin the short positions held by the hedge funds. When users of the Reddit threads like r/wallstreetbets realized this, they saw a way to profit at the pros' expense. GameStop was one of the most shorted stocks on Wall Street. The bet pays off if the price drops in the interim period, meaning the traders can pocket the difference.īoth Melvin and Citron placed such bets, heavily. They are then obliged to buy back the borrowed share at a later date.
In such bets, called "short sales," investors borrow a share and sell it. Many professional investors had bet that this decline would continue. Gamestop's stock had been falling for six straight years. The exact size of the losses taken by Citron and Melvin are unknown.Į-commerce: Facebook’s new shopping function How Reddit users caused the huge losses: Melvin Capital accepted some $2.75 billion (€2.27 billion) in investments from two other groups, in what was seen as an emergency influx of rescue capital. He rejected rumors that the backfired trades posed an existential threat to the fund. Melvin Capital is also pulling its resources from short positions on GameStop shares, with manager Gabe Plotkin telling US broadcaster CNBC that the hedge fund was taking a significant loss. How much money did the funds lose?Ĭitron Research acknowledged Wednesday in a YouTube video that it unwound the majority of its bets against GameStop's share price, taking "a loss, 100%" to do so. This has been driven by large numbers of non-professional traders, known as retail investors, supporting each other on Reddit threads such as r/wallstreetbets. The tables turned on Wall Street as Reddit traders continued to push up stock prices from the aging US video games high street store chain GameStop on Wednesday.Įstablished US investment funds Melvin Capital and Citron Research had placed bets for money-losing GameStop's stock to continue to fall.Īmid the advent of online gaming platforms like Steam and the trend of people buying and downloading their new video games directly, rather than buying a physical copy in a store, few stock market bets appeared to be safer.īut, despite no real change in the company's precarious position, GameStop shares have been on a meteoric climb from just $18 (around €15) a few weeks ago to a high of $380 on Wednesday.