Shares in Gamestop has been all the rage lately. You can’t log in to Twitter or TikTok without seeing how much money everyday people are making off Gamestop stock. And now you want a piece of the action. Either to make money, be part of history or to stick it to the man like the people at Reddit group Wallstreetbets are doing.
Why is Gamestop Stock Going Up?
Recently some hedge funds (read big bad Wall Street) have been looking at the dying shells of some companies like GameStop and thinking, “I can make a buck on this.” They started short selling these companies stock (Read my article on short selling for further information). For those who don’t know, short selling a stock involves borrowing the stock from some investor who owns it, then selling the stock on the market. Essentially, they are betting that the share price will go down.
The bet is that the price of the stock will go down so that later when you buy the stock back to return it to the company you borrowed it from you’ll pay less than what you sold it for. For example, you borrow some stock and sell it for $10 a share. Later, when the company files for bankruptcy you can buy it for $1 a share. you pocket the $9 difference, minus any fees associated with borrowing the stock.
Sounds easy, right? There’s a catch. If the price goes up you have to pay more for the stock than you sold it for. You can lose unlimited amounts of money doing this. Worse, you can be forced by your brokers to cover this loss at their whim.
So Hedge funds, primarily Melvin Capital started short selling Gamestop shares. And they short sold a lot. In fact, 136% of the outstanding shares had been short sold (how this is possible isn’t relevant). Some people on Reddit noticed this. They got together and decided to execute what’s known as a short squeeze. They start buying up the stock, which raises the price, once the price is high enough the people who have sold short are forced to buy back the stock to cover their postions.
But the people of Wallstreet Bets are not selling their shares. This is causing the price to go higher and higher as the hedge fund giants need to pay higher and higher prices to close their positions.
What is interesting is that the people at subreddit group /r/wallstreetbets want at least $1,000 a share. So far the stock price is quickly moving that way. It will be interesting how this plays out.
How to buy Gamestop stock in the UK?
Freetrade is basically an app that allows you to buy and sell shares. All you need is to click on my link, download the app and you are good to go. And best of all, unlike many other stockbrokers, there is zero commissions and no dealing fee with Freetrade.
There is currently a promotion running for new users. Anyone who signs up with my link, funds their account – can be as little as £1 – and completes a W8-BEN form on the app will receive a free share worth up to £200.
So if you want to buy shares in Gamestop, download the Freetrade app.
Please note: I should caution that Gamestop shares are totally out of whack with underlying business fundamentals. The price in my view is only rising because of the short squeeze thesis. So I urge you to reconsider investing in Gamestop shares. If you do decide to do so, only risk money you can afford to lose as the stock could end up being a total wipeout.