You’ve probably heard of Wall Street mess and irrational growth in GameStop stocks, and you might think that doesn’t make sense. Yes, the truth is that this is not compatible with any logic. In this article, help Content From the pnews.com website (apnews.com) we will review the game stop and its reasons.
The story goes that in recent months, the stock of a video game distribution company called GameStop has grown dramatically in the US stock market; The story went so far as to alarm many professional Wall Street investors, US lawmakers and even those in power in the White House.
The excitement of the stock market has reached a point where many brokerages and trading platforms have imposed restrictions on their clients in certain transactions with GameStop shares.
These events ultimately raise some fundamental questions for investors and observers: Has the US stock market entered a huge bubble? Do the new generation of traders deserve to disrupt such a market with just a few trading apps on their smartphones? Does it really matter how reckless new traders are compared to old traders?
At the same time, the leaders of the 99% movement (a popular movement in the United States that reflects the civil and economic discontent of the people) are the main motivators and supporters of this fledgling movement, believing that these events indicate Wall Street, hedge funds, and the 1% minority. Who have the most resources and power in the United States) will eventually be punished for their actions.
What is the story of Stop یم game stocks?
GameStop shares have been showing crazy behavior in recent months. Three weeks ago, it was priced at just $ 18, but doubled in just four days. This price growth continued unabated for several weeks until it doubled again on Tuesday (February 26). On Wednesday, the price of this share doubled again and reached $ 347.51. Shares of GameStop finally fell 44 percent to $ 193.60 on Thursday. However, the price per share of GameStop grew by a total of 928% during the first weeks of 2021, which is amazing in its own way.
Where is the game stop company in this story?
GameStop is still trying to consolidate its precarious position. The Texas-based Grapevine-based company sells video games in more than 5,000 stores, while an outbreak of the Corona virus has pushed customers away from traditional stores and turned to online gaming.
However, many traders have a clear vision for GameStop; The company announced earlier last month that Ryan Cohen, co-founder of Chewy, an online pet supply store, has joined the board of directors of GameStop. Many investors believe that with the arrival of Ryan Cohen, GameStop will move in the direction of digital transformation. But analysts still expect GameStop to end its next fiscal year at a loss.
Reddit social network footprint, in the story of Game Stop
The Reddit social network played an undeniable role in all that happened to GameStop. With the outbreak of Covid-19 disease and the homelessness of many people, the desire to participate in the stock market has also increased and many online forums have been formed around this issue.
Especially people who were members of a group called RedStreetBets in Reddit, played a major role in starting the upward trend of game-stop. Their arguments are mostly about economic ideas for lucrative trades, blaming each other for bad trades, and encouraging people to make big, bold bets. The members of this group have recently encouraged each other to buy shares of GameStop enough for its price to rise steadily.
But is this the only reason for more than 1000% growth of stop games? No! The main reason for this was that many hedge funds and professional Wall Street investors considered GameStop stocks worthless and disgusting, and had bet on the fall of the company by participating in short-term futures contracts.
What is a loan agreement (or shorts)?
Borrowing futures contracts are actually a way to make money from falling stocks. In a short contract, for example, traders borrow and sell a portion of the game stop from the broker. Then, if the price of this share behaves as they predicted and falls, they will buy GameStop shares again at a lower price, return their loan to the brokerage, and take the difference between the purchase and sale price as their profit. In this type of transaction, any price increase will cause the loan sellers to lose money. GameStop was one of the most popular Wall Street stocks for short contracts!
Also read: What is the position of Short and Long? Make a profit by lowering the price!
What is Sort squeez?
This is exactly what happened to GameStop. When a stock is under heavy pressure from borrowers, raising its price disrupts the situation. This means that as prices rise, sellers are forced to pull out of short contracts to avoid further losses. To do this, they must buy the stock as soon as possible, which in turn raises the stock price and thus creates a recurring cycle. This effect is called a sudden drop in sales or “short squares”.
This month, as stop-play loan sellers enter a cycle of sudden decline in sales, small-cap investors and newcomers to the stock market are encouraging each other to keep moving (more buys at higher prices).
Do Small Investors Really Believe in the Value of Stops?
Part of the initial debate and comment from traders in recent months has been about the true value of the game stop. But it is safe to say that recent developments in GameStop stock have nothing to do with its true value. In fact, recent events have been influenced by a movement whose main goal is to hit borrowers, hedge funds and other large financial institutions. Many see this movement as the end of the financial elite’s dominance of the stock market; People who for years benefited from the loss of ordinary traders.
Referring to the destructive role of major players in the US economy, one Reddit user blamed “them” for all the recessions and financial crises that “themselves” escaped from the pressures of the recession with the money of taxpayers and ordinary people. she wrote:
Buying stock stop games has nothing to do with greed; This movement is actually a way to get our rights back. The rights we have already paid for.
Or, for example, another user wrote:
This movement is because we have to work even on Thanksgiving and Black Friday for $ 9.50 an hour.
What does this have to do with futures contracts and leverage?
Futures and leverage are methods that lead traders to relatively high profits with relatively little money; Of course, as long as they correctly predict the direction of market movement and bet on the correct predictions. Many of the traders who pushed up GameStop stock prices were new and low-investment investors.
When traders buy an asset using Margin, they are actually using brokerage loans, which multiplies their profits and losses. An investor can also use the Options to acquire the right to buy a stock on a specific date and at a certain price. If the stock price reaches their expected target, they will earn more profit than normal and cash purchase of shares, and of course, if the price trend is analyzed incorrectly, their losses will be multiplied.
Also read: What is Margin Trading in Digital Currencies?
How much does Wall Street know about the ultimate value of stop-play?
Much much lower than its current price! Experience has shown that the price of a stock is expected to be directly dependent on the company’s revenue in the long run, and for now, the outlook for stop-play is still cloudy. Many Wall Street analysts estimate a price of around $ 15 or less per share of GameStop.
Will only Stop Game stock experience a price return?
No! As investors look for the next stop game, many stocks under borrowing sell-offs, such as US Airlines, BlackBerry and other recently declining stocks, experienced sharp price fluctuations this week.
Will these events also affect the major market indicators?
Many critics of the recent movement have dismissed the success of the GameStop game market and other similar companies, arguing that the impact of these events is limited to small segments of the market. But the fall of major stock indices on Wednesday was a wake-up call for the entire stock market.
The heavy losses of loan sellers may have forced them to sell some of their other stocks to raise money. Some analysts believe that the 2.6% drop in the S & P500 index on Wednesday is due to this event. This is the worst downturn in the US stock market since the beginning of October.
Did anyone predict these events?
Maybe not so much; But brokerage apps like Robinhood have made it much easier for newbies to enter the stock market. Trading fees have been reduced to zero and people can easily enter stock trading with their mobile phones. With the removal of each of these barriers, consumer rights advocates are making the playground bigger. But they also warn that making trading too easy will lead novices to do too much risky trading.
Can legislators play a role in this game?
The US Securities and Exchange Commission (SEC) has said it is closely monitoring market fluctuations. It is the SEC’s job to protect investors’ assets, and the general expectation on Wall Street is that GameStop stockholders are likely to suffer greatly as the stock price falls in the coming weeks.
“Chester Spatt, a former SEC senior economist and professor of economics and finance at Carnegie Mellon University’s School of Business, said of recent stock market developments:
What sets it apart from other similar cases is the connection between investors through the Reddit network, as they push each other to raise the price of stop-play games. However, this move can not be considered a clear example of market manipulation.
In the end, there may be no way to prevent people from being overly pressured to buy stocks; But as an alternative, Spot suggests educating novices first about the dangers of economic bubbles and risky and bigoted transactions.
Spot also said:
Many ordinary people now feel empowered and believe that they do not need to partner with traditional Wall Street actors to invest. Of course, people have not benefited much from partnering with traditional actors in the past.