For everyone that doesn't quite understand what just happened in the stock market recently with $GME, read this. This is something very important in the history of trading and raises a bunch of questions about retail investors.

A thread about #shorting the #stockmarket

First things first; what is a "Short" ?
A short is when you borrow shares from a broker and selling your position right away in hopes that the price will fall to buy pay them back at the lower value, thus profiting from the decline in price.

Here's an example,

I want to short ABC currently priced at 100$.

I don't own it, I just borrow one share from my broker.

I sell it immediately and make 100$.

I currently owe my broker one share.

At this point the share price dropped to 75$ due to the impression that there is less demand.

I "cover" my short position and buy back 1 share of ABC at 75$

I made 100$ selling the share and only had to pay 75$ to return it.

I have netted a 25$ profit (minus fees).

This can be very profitable. But let's say instead of dropping, the stock value goes up.

I still need to return what I borrowed

I will have to cover the difference with my money.

When short selling, The price can rise indefinitely so my potential losses are unlimited.

What happened a few weeks ago is that someone noticed that a hedge fund started taking massive bets against $GME and decided to place short positions.

Redditors started purchasing massive amounts of shares and in response GameStop shares spiked nearly 80 percent last Friday.

The hedge funds that held short positions started to lose billions.

Melvin Capital's losses surpassed their company value by more than 13 Billion.

This forced them to close their position and repay all the stocks they borrowed at much higher prices.

This is what we call a "Short Squeeze"

Melvin Capital has declared bankruptcy.

The other hedge funds that had big short positions have also been affected.

Wall street is condemning individual investors and has pressured Robin hood app to freeze trades certain stocks.

This is similar to what happened in 2008 during the Subprime mortgage crisis.

Many people defaulted on their home mortgages and lost their life savings.

But that time, financial institutions, regulators and credit agencies were responsible for creating the crisis.

Robinhood's move to restrict purchases of $GME shocked investors and many people have been angry at the decision.

Questions are being made in regards to the integrity of the trading app for shutting everyone out and forcing them to sell after tumbling by 44%.

We didn’t see anyone being held accountable in regards to the mortgage crisis.

The uprising of the people against $GME seems like it's the first time anyone is being held accountable on wall street.

The problem is that we have just been caught playing their own game.