What Happened On Wall Street?

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In early February, scrolling through TikTok and finding comments reading “to the moon!” was inevitable. Everyone seemed to obsess over companies such as GameStop, AMC, Nokia, and Blackberry. However, what was the reason for this craze? What generated this madness, and why was it so prevalent on TikTok, of all places? 

The “incident” began on Reddit when user r/wallstreetbets noticed and posted about GameStop (GME)’s short interest. A group of Reddit users then agreed to buy and hold GME stock, regardless of how the price fluctuated. This news quickly spread to TikTok, where the plan circulated from there. But why was this plan so controversial? Well, the plan was to attempt a short squeeze- which occurs when stock prices sharply rise and force traders, who bet its price would fall, to scramble and buy it back to prevent even greater losses. Those on Reddit wanted to “get revenge on Wall Street” and force the short sellers, who were the villains in the eyes of Redditors, to buy back the stock at higher prices and therefore suffer financial losses. Reddit users chose companies such as GameStop, Nokia, Blackberry, and AMC because they believed that the stock market had taken advantage of these companies. They made it their self-proclaimed duty to help these companies; however, this had serious consequences for others businesses. As defined by Investopedia, a hedge fund is a financial partnership that uses pooled funds and employs different strategies to earn active returns for its numerous investors. The short squeeze was so catastrophic to certain investors that it largely contributed to hedge fund Melvin Capital Management’s loss of over $4 billion in just January of this year. It also caused controversy when investing app Robinhood froze all trading on GameStop shares following the dramatic rise in prices, something that attracted attention across national media.

If nothing else, January’s stock market craze is able to teach us two lessons. For starters, we can understand the volatility of Wall Street and the worldwide stock exchange. In addition, as if we were not already aware, we learned the true power and influence social media holds over society and our day-to-day lives.

 

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