North American stock market: what's happening?

[StocksAndScares]

Can anyone explain, or point to something that explains, what's happening in the US stock market?

If I buy 100 shares of Gamestop and then I sell them to you and promise to buy them at a later date. Not just a promise - I legally have to buy them back.

In meantime, I'll pay you interest on the shares.

So on/by that date, I think the value will go down by so much that I'll be able to sell the share back to you at the lower prices and pay the interest. The difference is my profit.

So - If I sold my Gamestop shares to you for £10 each and the on that date I have to buy them and the price has now dropped to £4.

I've made £6 per share minus interest.

However, users in this Reddit thread buy Gamestop shares and drive the price up. The price it can go up doesn't have a cap. It could go up to £1000 per share if people keep trying to buy them.

So on that date, I have to buy them back at £1000 each when I only sold them to you for £10 and I still need to pay you that interest as well.

Betting on the shorting an old high street retailer like Gamestop seems a safe way to assume the market would move. Trading has been bad despite the games market being strong. It was very difficult to get hold of a PS5 they were selling so fast. You can only buy directly from Nintendo now they don't sell wholesale.

There's a great movie "The Big Short" where a small group of US investors borrowed shares in housing thinking the housing market would crash. Most banks were more than happy to lend them the shares as they assumed it would never happen and then they can make money on the interest as well.

A great film to watch if you're in the mood for some stock market movies after this.

There's a great movie "The Big Short" where a small group of US investors borrowed shares in housing thinking the housing market would crash. Most banks were more than happy to lend them the shares as they assumed it would never happen and then they can make money on the interest as well.

such was the hubris that a couple of the banks collapsed and some of the people found they were shorting their own banks. A great watch and not over complicated.

A lot of tax gets evaded by people being paid in share options.

If I buy 100 shares of Gamestop and then I sell them to you and promise to buy them at a later date. Not just a promise - I legally have to buy them back.

In meantime, I'll pay you interest on the shares.

So on/by that date, I think the value will go down by so much that I'll be able to sell the share back to you at the lower prices and pay the interest. The difference is my profit.

So - If I sold my Gamestop shares to you for £10 each and the on that date I have to buy them and the price has now dropped to £4.

I'm confused, who is the "you" in this scenario? A PP said the broker makes money by being paid interest on the shares they lend, which makes sense. But what you have said is you sell the shares to "me" and also pay interest on the shares to the same "me" which suggests the shares are sold to the broker? But I thought the broker lends shares and they are sold to a random other person /people. The person selling has to buy them back because there have to give back the shares to the broker?

@DGRossetti

A lot of tax gets evaded by people being paid in share options.

Our accountant declares that

Sorry I was trying to simplify the example by only having two parties directly trading.

In reality, there its more complex. There is a good link here.

www.investopedia.com/ask/answers/05/shortsalebenefit.asp

The "you" is dependant on how many people are in the chain from shareholder to shareholder.

It's fascinting

But... all the people who want to "fuck the system", it might be your pension fund next?

We all have stakes in this

Not saying that makes it a bad thing, there some poetic justice in nasty hedge funds getting their comeuppance!

I think it only became about "f**King the system" this week.

The WSB Reddit Forum has had members tracking GME since 2019.
Their thinking as Game Stop closed up shops and moved to online this was a good company strategy.

GME also brought on new board members that were orientated around e-commerce with successful track history. This is all Fundamental Market analysis that people consider when trading markets.

I don't think WSB thought this would happen I think they were pleased to be buying shares at $2 each last year were $20 a year later.

It became very personal this week when trading was suspended on apps like Robin Hood. The price was rocketing up from $200 to $450 per share yesterday until they closed the market to individual investors.

It's now an emotional bubble that's got to burst at some point but at what price and when - This is what's making it interesting.

I am finding it interesting too. I've read mixed reports on the legality around the short selling (some of it was made legal back in 2007, but some of it may still be illegal, but it's just barely ever enforced) and questions on places stopping individual buyers but not hedge fund staff buying...

I've wondered about the UK's laws around this - obviously individuals can buy whereever though there are different tax laws, but what are the laws on British hedge funds and stocks? Would it possible for a perfect storm like this to be build up here?

On Radio 2 now

It's fascinating, all just a game.

Chickeny Chick, I think it's more about unethical behaviour by the hedge funds, controlling who is allowed to buy and forcing people to sell against their will because of automated systems. There's been some very dodgy stuff.

If the big funds had held their hands up and admitted making a bad bet and a loss, it wouldn't be as extreme as it's become. They chose to double down. And again. And again. They assumed their size would force everyone else to play by their rules, but smaller groups have organised to stand against it, effectively.

I can imagine there are a lot of people making money now by buying shares at the start of this rise and then selling them to people keen to get in on the action.

Someone could get left holding shares that they brought at a high price - and then they start to collapse.

Like Dutch bulbs

This is an interesting article on the winners

www.vanityfair.com/news/2021/01/gamestop-mania-is-leaving-a-trail-of-destruction-in-its-wake

Yes, choma, my son has a friend he's concerned about. He hasn't taken any sensible strategy, and is just generally messing about with it. Hopefully no one is putting in money they can't afford to lose.

Someone could get left holding shares that they brought at a high price - and then they start to collapse.

But the point is, there are guaranteed buyers.

They have to buy their stock back.

Every day they don't buy their stock back, they're paying billions of interest.

So it's essentially a game of chicken.

Here's what's happening now compared with what happened with VW. See how it looks about the same before the massive spike?

Here's an interesting post from a redditors perspective....

https://www.reddit.com/r/wallstreetbets/comments/l7bpf5/30secondssfromtriggeringgmarketnuclearrbomb/?utmsource=share&utmmmedium=iosapp&utmm_name=iossmf

I like the old days when you brought a share, got dividends and then sold it.

I bought a GME share and T212 kindly sold it on my behalf. I'm not joking!

Oh here you all are, knew I couldn't be the only mner fascinated by this. I am also treating this like the Grand National!

The freeshare apps are being very underhand by all accounts - I think that will push this further than it would have gone otherwise.

The whole market seems suspiciously slow today...

bought a GME share and T212 kindly sold it on my behalf. I'm not joking!

How much did they trade it at given the volatile price today? (Also are they not being a bit illegal unloading your property without asking?).

Everyone should be worried about this. While it looks like a game from the outside and people are having a bit of fun playing the big guns at their own game, it has serious ramifications for the market in general. The majority of your pension is likely invested in big hedge funds like the ones losing billions over this, so you could be losing money without knowing it. If this becomes a thing, then we will all be worse off as fund performance will be more volatile. Still fascinated by it though!

@DiamondHanded

bought a GME share and T212 kindly sold it on my behalf. I'm not joking!

How much did they trade it at given the volatile price today? (Also are they not being a bit illegal unloading your property without asking?).

They so,d it (without asking me) at a loss of £10 to me! The share itself has shot up 200% today so I wouldn't have made the loss they're claiming!

Awful, just blatant thievery that isn't it?! They owe you max price at the very least surely.

I see law suits starting to pop up against Robinhood, this won't go away in a hurry. Found a wiki entry ...

en.wikipedia.org/wiki/GameStop_short_squeeze

Also this interesting graph -

www.reddit.com/r/wallstreetbets/comments/l81luf/hey_sec_heres_your_market_manipulation_rh_working/