It starts with a Reddit thread. r/WallStreetBets users began to notice that large hedge funds, one being Melvin Capital, had invested in GameStop and had sold short stocks, predicting that the GameStop stock would go down. A short sell occurs when an investor "borrows" stock from a firm, sells it to a buyer, and waits for the price to go down before buying it back at a lower price to return it to the firm in place. In essence, Melvin Capital "borrowed" stock from GameStop (GME), sold it, and was waiting for the stock to drop to buy it back at a lower cost and return it to GME, making a profit. Stock selling usually occurs when stock prices drop since it leads to the maximum profit for investment firms and hedge funds.
Since a particular hedge fund, Melvin Capital, had so much short stock, Redditors thought it would be fun to play their hand at the stock exchange.
Deciding to mess with multi-millionaires, users on the subreddit banded together to buy stock from GameStop, causing an increase in demand. As it happens in the stock exchange, the increase in demand led to an increase in stock price, effectively ruining the possibility of GameStop stock price going down. The 52 week low for GameStop was $2.57 USD, while as of January 29, 2021 at 12:34 pm it is priced at $379.81 USD. That is a 14678.6% price increase. The sudden price increase has caused panic for Melvin Capital, as they have to buy back their borrowed stock at a higher rate and return it to GME with interest.
This is where the real fun begins.
Stock traders noticed the sudden spike of GME stock prices, causing trading apps like Robinhood, TD Ameritrade, and WeBull to restrict buying GameStop stock. Many saw this as trading companies protecting large hedge funds, and they further declared war in the subreddit. Users actively began commenting on their strategies and scrutinized Melvin Capital's moves with laser-precision. They decided that by buying and holding their stock, they could drive the prices up even higher and cause investment firms who shorted GME stock to lose money. It was deemed a good move since they saw that Melvin Capital, as well as other firms, were repeatedly shorting stocks in an attempt to drive the price back down in 2020 and were now facing the music of their own market manipulation.
Media coverage on GME's stock is still ongoing and many are unsure where the stock price will go from here. However, that's not stopping Redditors from further investing in other companies, such as AMC and Nokia.
The market manipulation tactics seemingly reserved only for large hedge firms are now steadily being opened up to the general public. Redditors everywhere can rejoice because evidently you, too, can make a profit.