Retail investors uniting on Reddit have boosted shares of games retailer Gamestop. While speculation professionals lost billions, a YouTuber made a fortune with GME.

Dhe sensation is perfect: For many years, savvy stock market professionals have dominated the stock market and raked in billions with unscrupulous bets on dying companies. Small investors didn’t want to let that happen any longer and arranged to meet via Reddit.com in order to influence stock market events in a targeted manner. Together they ensured, among other things, that the shares of the ailing retail chain Gamestop rose to astronomical heights . Hedge fund managers who bet on the company’s ruin by short-selling lost billions of dollars in the coup. The New York Times reported recently, citing insiders, that the hedge fund Melvin Capital lost more than half of its total capital in the course of the action. Before the Gamestop share soared, that was $12.5 billion. Many other hedge funds are likely to have had a similar experience with GME shares.

YouTuber is now 46 times a millionaire

The big winners are the small investors. The US YouTuber Keith Gill is one of the initiators of the recent stock market revolt. The 34-year-old father advertises a media report on his channel Roaring Kittyaccording to already since August 2020 to buy Gamestop shares. He himself has done this on a large scale and regularly publishes screenshots of his bank account on the Internet forum Reddit. According to the report, they show that Gill has made a whopping $46 million (about €38 million) out of his $755,000 (about €625,000) invested in Gamestop in the past few days! For this success, he was frenetically celebrated by the rebellious small investor movement and is regarded by many hobby investors as a great role model. Some representatives of the current Reddit movement even enthusiastically describe Gill as the messiah of the new financial world.

Robinhood: The tool of many US retail investors

So-called neo-brokers are a new generation of online brokers who do not rely on the widest possible range of services and trading opportunities, but rather focus on a specific area of trading. At the same time, trading should be simple, fast, uncomplicated and mobile. The Robinhood app from California with more than ten million customers is considered a role model for this development and enables stock trading with 0 euros in fees. The app has not yet made it to Germany, but there are other providers here who do something similar. These include Just Trade, Trade Republic and Scalable Capital as the trading app comparison shows.

This is behind the price explosion of Gamestop shares

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Actually, Gamestop is just a retail chain for games and entertainment software, which suffers badly from the internet and smartphones. Despite this, the stock is up 900 percent since the beginning of 2021. We explain the background of the price explosion.

Gamestop stock up 4,500 percent since early 2020

If you look at the most popular shares at online brokers like Trade Republic , you will find the Gamestop share there almost continuously since the beginning of 2021.

The price has increased by almost 900 percent since the beginning of January 2021 – from 14 euros to 190 euros. The increase is even clearer compared to spring 2020. The price there was just 2.80 euros. This corresponds to an increase of around 4,500 percent.

Why is Gamestop Stock Rising So Much?

That’s a question that shareholders around the world have been asking themselves more and more over the last few days and weeks. Basically, there are several answers and possible explanations.

What does a short seller do?

On the one hand there are so-called short sellers. You bet that the price of a stock will fall. That is why they make so-called short sales. That is, the short sellers borrow shares and sell them at a certain price with the hope of buying them back later at a lower price.

In the case of the Gamestop share, for example, the large short seller Citron Research around boss Andrew Left has issued a sell recommendation.

Left had quite a few arguments. The pressure on Gamestop has increased steadily in recent years. Online and mobile games have hit brick-and-mortar retailers like Gamestop hard, pushing them to the brink of bankruptcy.

How young traders on Reddit and Co. work against short sellers

On the other side are investors. Or to be more precise: young investors who rely on free brokers like Robinhood for rising prices. The special thing about it is that these speculators meet in Reddit forums and thus buy in large numbers in a targeted manner and at the same time.

In particular, 2.7 million members plays a crucial role. According to information from the economic service Bloomberg , this type of trader is responsible for 20 percent of trading on the US stock exchange. The impact is correspondingly large.

What is a short squeeze?

This question is at the center of the price explosion in Gamestop shares. By definition , a short squeeze is “the shortage of supply in a security that has previously been sold short (“shorted”) in large numbers.”

So the massive buys by Robinhood and Reddit traders are forcing big short sellers like Citron Research to close their short positions by buying the stock. After all, every cent that goes up means a loss for short sellers.

Due to the forced purchases of the short sellers, the share price then rises again.

Why is the Gamestop Stock Hype So Dangerous?

So far, the story sounds like an interesting business model for laypeople. However, exactly the opposite is the case. The risk with such planned bets against the stock exchange is gigantic.

No one can guarantee a young investor that the Reddit community’s plan will work. However, if this plan fails, young adults in particular may lose their entire capital. This has already led young traders to suicide in the USA .

It is also unclear how long a share will continue to rise. If you get in at the wrong time, you may also be confronted with a total loss. It is therefore advisable not to blindly and ignorantly invest your entire fortune in hypes.

Gamestop share (GME)