GameStop: David Vs Goliath Stock Exchange Battle

Audio 04:02

The New York Stock Exchange (NYSE), often referred to as Wall Street, is the world's largest stock exchange (Illustration) © Jean-Christophe BENOIST / Wikimedia.org

By: Pauline Gleize Follow

9 min

Small stock marketers have managed to agitate Wall Street and cause a surge of speculative fever on certain stocks.

It all started with a stock-buying frenzy of GameStop, a chain of video game stores.

Publicity

Over the past few weeks, an army of amateur investors have coordinated on a Reddit discussion board to buy shares in GameStop.

Still, GameStop, which sells games in physical stores, is struggling and its growth prospects are poor.

It may sound strange, but this is indirectly the origin of what is happening at the moment.

Given the company's poor performance, hedge funds had bet on the company downside through short sales.

This consists of selling a share, before buying it.

For example, an investor borrows a share, sells it for 20 euros;

and only afterwards he buys the share

,

hoping that the price will have fallen, to pay it only 15 euros (still as an example).

Result, he makes a profit.

But, if a lot of stocks are sold short, it can send a signal and cause a mechanical downward effect.

+ 1642%

 Except that the amateur stock marketers came to stop the machine.

That, in particular, of the Melvin Capital fund

.

Massive purchases by amateur investors began to drive the price up.

So the large investment funds had to buy back at a high price the shares they had already sold, to limit their losses.

According to the

Wall Street Journal

, Melvin Capital would have lost 53% of its investments in January.

The fund was even bailed out by $ 2.75 billion by other companies.   

And these buybacks have further fueled the rise.

Result since the beginning of the year, the GameStop share has taken 1642%

.

But last week, brokerage platforms wanted to pull the rug out from under the foot of small investors.

The popular Robinhood application, whose motto is "

democratize finance for all

 "

,

decided Thursday to limit trading on a basket of stocks deemed too volatile.

TD Ameritrade has done the same.

This momentarily caused GameStop's action to pick up again.

It also caused an uproar.

In the face of criticism and the filing of a class action lawsuit in New York City, Robinhood again authorized "limited purchases" on Friday.

Robinhood partly justifies its decision by ensuring that it wants to protect its company and its clients from excessive volatility.

Some restrictions have been maintained.

It still made GameStop start to rise again.

Without putting an end to the concert of indignation.

 Elected officials and policeman of the Stock Exchange on the lookout

Republican Ted Cruz and Democrat Alexandria Ocasio-Cortez, and this is rare, are on the same line.

The MP blasted on Twitter that amateur investors were barred from trading stocks while institutional investors could.

A parliamentary hearing on "

 the predatory attitude of hedge funds

 " will be organized.

As for the SEC, the policeman of the American Stock Exchange, it said it monitors and assesses the volatility of the price of certain shares.

 More offensive, the Attorney General of Texas estimated in a statement that "

this likely coordination between 'hedge funds', brokerage platforms and internet servers to ward off threats to their domination of the market was scandalously unprecedented and unfair

 " and that " 

It reeked of corruption 

."

Occupy WallStreet?

Is this revolt of the stock marketers also tinged with politics 

?

In any case, for some it is a crusade against the big speculators who bet on the downside.

The followers of

WallStreetBets

, the forum where the action is coordinated, love risky bets.

But for some, it was also a question of "

showing that the masses have a say

".

Jaime Rogozinski, the creator of the

WallStreetBets

page from

which he has moved away, dares to compare with the Occupy WallStreet movement

.

A comparison that has its limits, of course, but, he assures us

"now, the little people have found a way to bypass the system from within 

".

This phenomenon has also spread to other companies: BlackBerry or AMC cinemas

.

It even inspired amateur investors in Malaysia who lent their support to a glove maker.

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