WallStreetBets: Platform for Discussing Stocks

Subscribe 

WallStreetBets: Platform for Discussing Stocks

WallStreetBets

WallStreetBets is a subreddit. It is an individual message board on Reddit.com, one of the most popular websites in the world. Users use this platform to discuss possible movements in the stock market. Currently, WallStreetBets has approximately 6 Million subscribers.

WallStreetBets users share and discuss the financial markets, often by following risky investment strategies, looking for stocks that can make big gains. In January 2012, entrepreneur Jaime Rogozinski founded WallStreetBets for individual investors to discuss their trading strategies and the stock market.

Over time, WallStreetBets has grown and built a reputation for promoting high-risk leveraged trading and treating stocks as memes. It has become known to the world in the last few days as users decide to raise the price of a stock that a major hedge fund has exposed. It has 6 million subscribers and streams have increased by more than 2000%.

 

Why WSB Reddit Is So Popular?

WallStreetBets details

WallStreetBets controversy has moved from Reddit to major media platforms as one of their GameStop-related ‘bets’ has caused major problems for the Wall Street hedge fund. WSB stands for WallStreetBets, the name of Reddit’s subreddit, which takes hedge funds.

Melvin Capital Management opened a large short position in GameStop stock. This means that they believe the stock price will drop and they borrow and sell a large number of shares to make a profit. It’s also not hard to understand that they plan to buy it back later at a lower price and pocket the difference. However, their plans did not go as planned. The stock skyrocketed rather than plummeted with the WallStreetBets move.

WallStreetBets users have decided to invest their money in GME shares. This has forced big-money investors like Melvin into a corner from which they cannot escape.The numbers are indeed quite surprising. The amount of money these investors put into the stock pushed GameStop’s share price up to $380. GameStop stock price was trading around $4 in July 2020.

This caused major financial problems for any institution that had a short position and sparked a greater debate about market manipulation. By some estimates, shorts have already lost more than $5 billion, and there are now WallStreetBets signs targeting other shorts.

 

What is GameStop?

about WallStreetBets

GameStop was a software retail company founded in 1984 in Dallas, Texas under the name “Babbage’s”. In 1999, Barnes & Noble, the largest US book retailer, acquired Software Etc, acquiring the growing company. They later merged with game maker Funco Inc.

Funco Inc changed its name to GameStop and offered itself to the New York Stock Exchange in 2002 with the code “GME”. The fact that things went wrong for GameStop, which sells computer games in more than 5 thousand stores in 10 countries (at least 4 thousand in the USA and Canada), did not start with the pandemic.

GameStop entered a difficult period with the purchase of computer games online. GameStop, which experienced a sales loss of $ 415.3 million in the third quarter of 2019, said in a statement to investors that they would close nearly 200 stores by the end of the year.

At the beginning of 2020, they announced that even during the holiday season, which includes Christmas and New Year’s, total sales decreased by 25%. Shares of the company hit a 17-year low of $4.49 cents. In April 2020, this value dropped to $2.80.

The company, which swapped 50 to 75% of its debts with bonds dated 2023 in June 2020, took a breather for a while, but the “bankruptcy” statements about GameStop never ended.

 

Shortening of GameStop Shares

This unprecedented activity in GameStop shares began on January 11, 2021. Big players in the securities market have started to short the shares of GameStop, which is called “sucker investment” of companies that manage mutual funds.

One of the terms that the financial world loves to use, “short” is to expect that the value of a stock will decrease. Investors borrow and sell a financial asset they do not have from another party, such as brokerage firms. If the stock depreciates as they expect, they buy it a second time at a lower price and replace it. Thus, they profit from the difference. Elon Musk who is the one of the 3 richest men in the world, argues that the shorting is fraud.

 

Banning WallStreetBets

They banned WallStreetBets because of the content of the messages on the message board. According to a Discord comment, some believe it’s for financial reasons. However, WallStreetBets was banned from Discord on January 27 for “continuing to allow hateful and discriminatory content after repeated warnings”.

WallStreetBets moderators stated that this ban was largely unjustified and that the allegations about user comments were merely an excuse to ban the platform. In short, they denied these accusations. Despite this ban, WallStreetBets did not shut down Reddit. The forum was briefly private on the evening of Wednesday, January 27th, and then became fully operational.

The reason WallStreetBets was special was because the moderators were unable to follow the published content. After Discord banned the WallStreetBets server for inappropriate content, r/WallStreetBets‘ moderators made the subreddit private for a little over an hour to prevent the same from happening on Reddit.

 

Was This a Casual Event or Was It Manipulation?

The actions of investors inspired by the WSB certainly had a huge impact on the market. However, it is currently unclear whether this is market manipulation. In the context of financial markets, market manipulation refers to a deliberate act to interfere with a free market. However, advocates of the WallStreetBets community will point out that all conversations are broadcast in a public forum between individuals.

It is impossible to give an accurate estimate of this as each trader’s profit will be in his own broker account. There are claims that users are making huge profits from the recommendations they receive from WallStreetBets. It should be noted that while these cannot be fully verified, GME’s share price has increased by more than 1000%.

Elon Musk is not a public WSB member but has sent regular tweets supporting the community and getting involved in his meme-style approaches to finance. Tesla CEO Elon Musk referred his more than 40 million Twitter followers to r/WallStreetBets on January 26, tweeting the link with the simple caption: “Gamestonk!!”

Views:
336
Article Categories:
INVESTING

Comments are closed.