GameStop & The Wall Street Mystery!

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By Ron Signore

This week carried a lot of excitement. The most specific example fell on Wall Street. The drama carried the same tensions and captivation as an episode of Billions for those of us on the outside.

The year 2020 brought a lot of new ventures for many. One of the easiest was the motivation of picking up to try and learn the tricks of the trade…in trading stocks. Shows like Billions or movies like The Wolf of Wall Street bring the glamoured lifestyle views of highly profitable and successful traders. There are those of us who glorified the likes of athletes growing up, these market kings are the idols of today’s tech enhanced generation that are motivated financially, and with the specific freedom of being their own boss.

The access to become an active trader is nearly as easy as chewing gum in today’s age. Platforms of brokers like Robinhood, Webull or E*Trade allow for fast access to all markets with $0 commission fees on trades and some with even less restrictions on how many trades can be made in a day or week are available. Of course, the larger brokerages are out there as well, but this week really drew some negative attention to the more infamous Robinhood.

Robinhood is arguably the most used app by new traders because of its attractive free trade structure and all the capabilities of many different trade types for the Average Joe to access. Those who do what they can to abide by basic trading 101 in buy low and sell high have a fighting chance against the bigger players in the game. There are those out there that prey on the Average Joe to become part of a trade circle of sorts with attempts to share their knowledge of how to be successful in the trading game that have nothing to do with the platform used, but as we learned in this year’s election, success comes in numbers, not necessarily dollars.

We saw a week that had a significant stock market event with the action seen on GameStop (GME) because we had a very notable David versus Goliath situation when the goliath based hedge funds and brokers took a position to try and short stock of the video game retailer. But they ran into some resistance with the Robinhood traders- which can be aligned to the application of Robinhood, or in this case, the metaphor for stealing from the rich to feed the poor. The resistance came when the little guys, as they were, found the information that the large hedge funds were looking to short the stock, so they drove the market price up on GameStop with the intention that the hedge funds would have to buy back the stock as an incredibly high price, costing billions of dollars.

Shorting a stock in simple terms is when you borrow a stock at a price with a hope that the stock price will go down and the difference is your profit. If it goes up from that original price you short sold at, you have to buy to cover the increase. So in essence, hedge funds sold low and bought high, shelling out more money to cover their initial move.
So why is this such a big deal? For years, many have condemned the thoughts of insider trading and market manipulation, which in truth, the power of larger hedge funds and higher profile traders find ways to do legally (and if not, pray they do not get caught). But this time, the beef comes because it was the little guy. Make no mistake, they manipulated the market, and while it was all derived from a Reddit group looking to make profits themselves based on the legal information, they attained based on market activity, it was not insider-based trading as the SEC would categorize it. AOC came out calling it how she saw it where she claimed that everyday the big guys treat the market like a “casino” every day with the indication that this time, the player beat the house.

To her point, the big guys control the market. It is not the economy per se, but really the 1% who have the most influence on the actions of the market. It is not a fair game, like a casino, the house- or big guy, always wins a massive majority of the time. It is not a fair game and even successful day traders are few and far between. People believe you trade against the market, but they don’t realize the market is another person like you or me on the other end of that transaction. So now you are stacking up your money, your intelligence and every other variable out there against someone who may do this for a living or have a level up on each variable previously mentioned.

This past year, I took similar steps. I became interested in how to earn some extra money in the stock market and learned many lessons over the past year with some smart wins and dumb losses. It is an interesting and competitive market that can be lucrative to many of us make more winners than losers. I encourage each of you to look into some of these areas of the stock market and understand how it works, not only before participating, but before claiming a stake in expressing feelings about the events that transpired this week. The emotions and comments this week ran high with many, ranging from those kids are criminals to thank goodness the big guys took some lumps. Whatever side you are on in that reality of those arguments, take a second and investigate the why and the how. It will allow for a full circle perception of the game you may not be part of.

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