Gamestop and the stock market

Rin Gatley, The Delphi Staff

On Wednesday, January 27th, 2021, a group of Reddit users, under the subreddit of r/Wallstreetbets, undermined hedge funds by investing in plummeting stocks, the most notable being Gamestop.  Then the investment app that the Redditors were using, Robinhood, limited the shares that people could buy on these companies.

Major hedge funds often borrow stocks that they think are going to go down so that they only have to pay the lower price once the stock has already gone down.  So, many hedge funds borrowed stocks like Gamestop, guessing that they would go down and they could make money. 

The Redditors who bought the stocks caused the price to rise, so the hedge funds had to pay the higher prices, rather than the lower ones.  With all of the Redditors investing in ‘dead’ stocks, the market is more volatile, making it harder to predict which stocks will drop and which will rise. 

Coming into this week, though, most of the stocks have dropped significantly.  Gamestop has dropped almost 90 percent since last Wednesday.  The last hope for the Redditors is Blackberry, a once-prominent phone company, which is slowly rising, but no one knows if it will continue this way.  

Robinhood, the investing app that many used to buy Gamestop stocks, paused trading on stocks such as AMC movie theatres (AMC), Gamestop (GME), Bed Bath and Beyond (BBBY), BlackBerry (BB), and Nokia (NOK).  Robinhood is facing multiple lawsuits from this pause, claiming that Robinhood helped “manipulate the market” in favor of hedge funds, like Citadel, with which Robinhood is suspected of working. 

Robinhood cites that the pause of stock trading was a “risk-management decision.”  Robinhood is also denying accusations of selling these busy stocks without the buyer’s permission.  

In the end, I leave you with a bit of my own opinion.  If you believe ‘The freer the market, the freer the people” and are against the Redditors, why is that?  Why are the Redditors not allowed to manipulate the market in their favor?