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Why Don’t Hedge Funds Like When Small Investors Play Their Game?
The fiasco over GameStop, AMC, and other stocks is a vivid reminder that the financial markets are only meant to benefit the rich.
It all started on the subreddit r/WallStreetBets (WSB), where a community of millions, banded together to take on Hedge Funds that were trying to short Gamestop stock. To understand the story fully, we need to understand what it means to short a stock.
Hedge funds, an investment fund that uses extensive use of complex trading on the stock market, can take short positions on a company. The fund is betting that the company is going to see a decrease in its share price and gain money if the stock drops below a certain price. Regular traders can do the same, but hedge funds are able to use their knowledge of complex trades to better predict when and if such a short will occur. However, a community of Redditors snapped up shares of GameStop, knowing that their momentum would propel the stock forward.
For some followers of the subreddit community, this was an opportunity to “eat the rich”. It was a real chance to show the hedge funders that their use of expensive and complex trading technology like Bloomberg terminals could be overpowered by amateur investors coming together…
