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since my finance degree isn’t good for getting a damn job, i can use it to explain the GameStop situation and stock shorts
thread(1/?)
thread(1/?)
so here’s the deal about shorting a stock. it can be thought of conceptually as betting against the stock. but in some ways it’s a lot more risky.
the hedge funds which consist of institutional investors (big, corporate money) decided to short GameStop
the hedge funds which consist of institutional investors (big, corporate money) decided to short GameStop
why is it more risky you may ask? unlimited downside!
when you decide to short a stock when the price changes anywhere from its current price to infinity dollars— you would lose money.
you profit potential only exists from the current stock price to $0
when you decide to short a stock when the price changes anywhere from its current price to infinity dollars— you would lose money.
you profit potential only exists from the current stock price to $0
Let’s say ‘GunsRUs’ is worth $5. You decide to short that stock. If you are wrong and the stock price increases to $500..
you owe the brokerage for the entire change in price (or whoever you invested with) and those losses are magnified because shorts are purchased w/ creditworthiness (so plus interest)
essentially these hedge funds shorted or bet against gamestop on credit
when the redditors drove up the price, it magnified their losses that were purchased on credit. so they didn’t just lose a bet, they lost BIG
when the redditors drove up the price, it magnified their losses that were purchased on credit. so they didn’t just lose a bet, they lost BIG
what happened was a short squeeze. and this is something that happened long before reddit decided to do it. (see: Tesla 2019)
when the stock prices begins to rise, it forces all short sellers to get rid of their position, and purchase the stock at a loss, to cover their margins
when the stock prices begins to rise, it forces all short sellers to get rid of their position, and purchase the stock at a loss, to cover their margins
Why short a stock in the first place?
— it opens up your investment potential
— main way to profit in a bear market (downward-looking)
— can help you set up different ‘security’ or ‘insurance’ mechanisms for other bets you’re making in the stock market (read up on options)
— it opens up your investment potential
— main way to profit in a bear market (downward-looking)
— can help you set up different ‘security’ or ‘insurance’ mechanisms for other bets you’re making in the stock market (read up on options)
another key aspect of this
hedge fund investors do not consider individual investors when they place bets!! typically individual investors do not move the market. what moves the market are other institutional investors and banks financial projections
hedge fund investors do not consider individual investors when they place bets!! typically individual investors do not move the market. what moves the market are other institutional investors and banks financial projections
if you’re curious about these projections, you can find equity research reports online
what’s important is— go long on real, tangible, growth potential
only go short if you have insider information (just my opinion) or if you are creating an option (put/call)
what’s important is— go long on real, tangible, growth potential
only go short if you have insider information (just my opinion) or if you are creating an option (put/call)
but it’s about time we make the hedge funds consider individual investors?
and it’s also about time to quit letting mutual funds make your bets for you (& when they do that, you often support companies you think are reprehensible)
win, win. /thread
and it’s also about time to quit letting mutual funds make your bets for you (& when they do that, you often support companies you think are reprehensible)
win, win. /thread
