The GameStop case is not as complex as it seems. It calls into question hedge funds, these speculative funds decried by the stock marketers of the web.
The GameStop affair has shaken Wall Street for a few days. We explain the bottom of this giant quack that disturbs many American economists.
GameStop: a course originally threatened
In the United States, the stock market has opened up to small investors for a few months. Since the start of the Covid-19 crisis, many stocks have fallen, allowing entry into the world of the stock market with low investment. Thus, students, employees, or even retirees have let themselves be tempted.
Since many Americans use Robinhoodapplication to buy and sell shares. One of the app users wanted to capitalize on the action of GameStop. GameStop is a chain of stores specializing in video games and the parent company of the French company MicroMania. However, a few days earlier a group of “hedge funds” (speculative funds) bet on a drop in the brand’s shares.
The action up by more than 1,400%
Finding the share price undercut and outraged by the decisions of hedge funds, this American, user of the Robinhood application, decides to reverse the game. To achieve his ends , the man is urging users of a community forum Redditspecializing in the stock exchange to mass buy GameStop stock.
Forum users respond to this call, and the company’s stock price is soaring with a 1,400% increase. an increase of this magnitude does not often happen on Wall Street.
Billions of dollars lost
Since this massive increase, the big hedge funds have lost several billion dollars. On the Reddit forum several users brag about having earned thousands of dollars thinking they have “hacked” Wall Street.
Quickly, the Robinhood application stopped the sale of GameStop shares denouncing a price that was too “volatile”.
This temporary revenge of the small investors on the big ones shows that no economic actor is untouchable, not even the big “hedge funds”.
But this community action is limited to the complexity of the system. “The members of the WallStreetBets forum brought Wall Street elites to their knees, it’s kind of funny, but it will get in order […] Ultimately, the market’s strength is greater than any attempt at manipulation, “said Ramon de Oliveira, chairman of the supervisory board of Equitable and AllianceBernstein, quoted by Le Monde.
Unlikely in France
Today, the speculative bubble around GameStop is pierced. The share price was down 60% on Tuesday 2 February, demonstrating the temporary nature of this revolt.
Experts believe that a mass action of this type à la française is not possible for the moment, in particular, because of the lack of a stock market culture of the population. “What happened with GameStop requires special financial skills such as mastering the concept of leverage”, analyzes Patrick Chotard, CEO of Lynceus Partners, quoted by Le Monde.