The Game Stop Stock Controversy

Photo by Clay Banks on Unsplash

After 2020, everyone was hoping to enter the new year with a fresh mindset and less breaking news. Obviously, it does not seem like that is going to happen. In the past few weeks, the U.S. has seen riots in Washington, D.C., an impeachment, an inauguration, and an incredible upset of the stock market. On January 11th, a group of redditors began driving up the price of the GameStop Stock and effectively short squeezed it. 

In order to understand the phenomenon that occurred, there is some basic stock market terminology to learn. To “short” a stock means to borrow a share from someone, sell that stock at its original price, buy it back when the price of the stock drops, and return that share back to its owner. People on Wall Street have been using this strategy for years. While some see this strategy as efficient, others see it as harmful to the stock market. This strategy relies on the prediction that a certain stock is losing value and will continue to lose value, and if the value of the stock rises, the investor must either purchase it before it gets too high or wait and hope the price falls again. “Shorting” stocks is extremely risky because if the price gets too high, an investment firm could face unbelievable damages. 

In the Game Stop controversy, the redditor that encouraged this strategy found the GameStop stock, , and encouraged people to buy it as he convinced people that the stock was significantly undervalued. It seems like a long shot, but unbelievably, people did. His post spread like wildfire across almost every social media outlet, causing people all across the world to buy GameStop stocks. The market value of the stock rose 400% in less than a week, and the investors that were shorting the stock now face damages of over 13.1 billion dollars. 

To a high school or college student, this event may seem like an anomaly, or something unprecedented that won’t happen again in the future. As unexpected as it is, it is also an important lesson for those in the business world. Not only is social media making an impact on the stock market, but also is Wall Street not a force of its own anymore. The people now have power over the stock market, and it is not just an elitist group of investors causing the market to fluctuate. Young people are gaining power in the market and finding ways to challenge the structure of our financial society. People need to learn from this event and realize that the structure of the market will change. The economy and the future depends on the youth, and the GameStop stock scandals are just one example.