Let's just assume that there are 100 shares of GameStop (worldwide) and go from there. Let's assume that the price per share/stock before all of this was $100 (in a "good" economy, etc.). How would this all work?
A nice timeline, step by step, line by line would be nice. For ex:
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Stock is selling at $100 per share (100 shares total). June 20XX
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Economy starts tanking, stock now at $95 per share. August 20XX
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People start predicting that it will go down further, thus they start "betting" (insert definitions that are accessible and not jargony), etc.
^ something like that would be nice. Thanks!
So this article is a great starting place, but I'll try to break it down for those of you that don't want to go to Bloomberg News.
Gamestop as a company right now is basically a Blockbusters in the late 2000's. It's been dying a slow death for a long time. It wasn't quite dead yet though. Shares were around $5 in June 2019 where we'll start our story.
Many large financial institutions were 'shorting' the stock, which isn't quite like buying a stock. When you short a stock, you are actually 'borrowing' it, before immediately selling it to someone. You then hope the stock price goes down in the future, where you buy the stock back at the lower price and return it to the original owner. Your profits come from the change in price over that time. For example, a stock is $10, and you short it. When you have to return the stock to the original owner the stock price has dropped to $5. Thus, you made $5 by shorting the stock.
The flipside of that is what happens if the price increases by the time you have to return it. There is no limit to how much money you can lose. If that $10 stock went up in price to $50, you would lose $40 when you had return it. If the price went to $1000, you would be out $990, even though you only spent $10 on the initial short.
A user of WSB noticed that despite the trajectory Gamestop was on, it was probably worth more than its current stock price. One or two big Fund Managers also saw potential in the stock. The pandemic came in and kept Gamestop on life support, and then the new console generation came out, bolstering their value. Many people who were shorting the stock didn't even expect the stock to make it to the end of 2020, so this was starting to look bad for them.
WSB starts memeing on the stock, because it's fun thinking of these institutions losing money, and they're all gamers anyway, so they are already familiar with Gamestop.
Long story short, the gamestop price topped out a little under $150 today, a 30x rise from the $5 it was at in June 2019. The big financial institutions need to cover their position, which means they need to buy more shares, which can increase the stock price even more. They need the stock to go down in price, or they're fucked. WSB dinguses aren't selling though, because they know they have the institutions by the nuts. The entire system wants the price to go down, but the idiots over at WSB have realized that if they hold the price will continue to rise.
Hopefully this helps a bit!
I think this is the real magic of the situation - the people who shorted the stock MUST buy it when their short expires. And the number of shares shorted is actually MORE than the total number of shares. So there comes a "squeeze" where a bunch of people have to buy a bunch of shares of stock at any price, and you've got a bunch of people (WSB people doing memes) who basically say "nah I don't wanna sell at any price" so there's no limit to how high the price can get until someone breaks down and sells.
How is this possible? For example, if I own 10 shares and "borrow out" all 10, how can I borrow out more?
Okay so I'm person A, I think the stock is going to go down, so I borrow 10 shares from person B. I don't just hold on to them, if I think the price is going down, I sell them to person C because I plan to re-buy them at a lower price later, so I can make money. Person C can then "loan" the shares to another person. So now all 10 shares are loaned twice. Stonks.
I think I'd understand this better if I imagine you as Margot Robbie in a bubble bath.
Okay so I’m Margot Robbie in a bubble bath, I think the stock is going to go down, so I borrow 10 shares from person B. I don’t just hold on to them, if I think the price is going down, I sell them to person C because I plan to re-buy them at a lower price later, so I can make money. Person C can then “loan” the shares to another person. So now all 10 shares are loaned twice. Stonks.
Jesus and this is allowed? Wtf
This is where everyone is supposed to put enough of their money so they can retire.
The thing you're supposed to put your money so you can retire is in actually buying and holding on to stocks. (Because shares come with a vote on how the company operates, and enough of the share holders are voting "make shareholders rich" that you can assume this is what the company will do. Capitalism!)
Shorts and puts and calls and all that shit is a layer of absurd gambling on top of that. Which, according to standard economic theory, makes the stock prices more stable and reliable for people doing the buy-hold thing. (Doesn't seem like a great theory to me tbh.)
And I'm assuming all through this, Person B (original owner) can "sell" their interest in the stock? In other words, they can go to Person D and say "hey I got ten stocks that Person A (borrower) is borrowing right now, do you want to buy them? You'll get extra interest from A when he gives the shares back!"
All the while Person B has no idea that Person A "sold" to Person C, and has no idea that Person C "loaned" to somebody else. Is this also allowed (i.e. for A to sell stock even though someone else is borrowing it)?
EDIT: I mixed up the people lol. This is needlessly complicated and it's a fucking travesty that it's allowed.
I have absolutely no idea, but based on my understanding of wall street and their obsession with creating contracts to do every damn thing, I wouldn't be surprised if someone came up with a way to do that or something like it.
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Its actually not i dont think, but it happens anyway
Although it is very similar to how banks create money if you didn't know about that. inflation doesnt come from the mint printing money, it comes from the fed setting the interest rate and minimum reserve ratio. there are some good videos on this but theyre probably all from ghouls.
https://youtu.be/JG5c8nhR3LE
Yeah I'm somewhat familiar with fractional reserve banking and how banks pretty much just create money "out of thin air."
Well... yes and no. No in that it actually isn't allowed and naked short selling is illegal, but yes in that hedge fund douchebags don't actually have to follow laws.
Why would someone let you borrow their stock? What's in it for them?
"hey, can I borrow that stock you have? I'll pay you interest"
Off of the top of my head, that's one way you, the actual stockholder, can make money off this. Like a loan, but with with stocks instead of money.
And I'm assuming that since you're the legal "owner" of the stocks, you can sell them even though someone else is borrowing them from you? I.e. that borrower will return the stock to the "new owner" (i.e. the person who you sold it to)?
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There is interest paid on the shorted stock as well
Who are they borrowing it from?
Someone who already owns it, likely an institution. They benefit by taking interest on the loan.
Sometimes portfolio managers will allow people to short stocks that they own. So if you have a portfolio with google in it, your portfolio may allow someone to short the stock from them while you own it.
Now I'm picturing the WSB folk as mischievous gremlins
Chaotic good, amirite