Basically, you "borrow" a stock and sell it at the current price, with a promise to return the share later.
Let's say you borrow a single share, and sell it for 8 dollars. You now have 8 dollars, but also a debt of 1 share. Later, if the stock falls to 5 dollars, you buy a share and return it to the person you borrowed it from (usually your broker). You sold your borrowed share for 8 dollars, but had to buy one for 5, so you profited 3 dollars. However, let's say the stock goes up to 10 instead. When the person that loaned you stock wants it back (usually to sell it themselves) you'll have to buy a share for 10 to give back to them, resulting in a loss of 2 dollars. It's a way to make money when a stock goes down, however, it's very risky as your potential loss is unlimited (because the higher the stock goes, the more money you lose).
In the gamestop case, the hedge fund shorted it at 8 dollars, but it's currently sitting over 300. So, if the lender that gave them the shares was to act on the loan (which apparently will happen this Friday), then the hedge fund will take a loss of 292 dollars per share.
Generally they charge a fee or interest. It's usually beneficial because many low risk funds will generally hold long positions, meaning they aren't swing trading or shorting often, and increase profit by loaning out the shares they're holding onto to other sellers that are less risk adverse.
I am not a financial guy so I don't understand any of the complexities, but from my understanding it is like betting against a company you think will fail. Somehow when the companies stock prices fall these hedge funds make money. But when the prices go up especially so drastically in this case going up like 50x in price they lose billions of dollars. That is literally all I know about them, so if you want to know how they actually work you will have to research it yourself.
A bunch of autistic redditors are buying Gamestop stock at way inflated prices and it is messing with these hedge fund's shorts.
Is this like The Big Short in reverse?
Yes. Holding a stock has risks but no time limit.
Shorting is on a fuse. You can fuck the shorting contracts to death by stalling a stock from falling.
So essentially, Reddit Autists are kamikazeing their own money in order to screw over hedge funders.
What is a short?
Basically, you "borrow" a stock and sell it at the current price, with a promise to return the share later. Let's say you borrow a single share, and sell it for 8 dollars. You now have 8 dollars, but also a debt of 1 share. Later, if the stock falls to 5 dollars, you buy a share and return it to the person you borrowed it from (usually your broker). You sold your borrowed share for 8 dollars, but had to buy one for 5, so you profited 3 dollars. However, let's say the stock goes up to 10 instead. When the person that loaned you stock wants it back (usually to sell it themselves) you'll have to buy a share for 10 to give back to them, resulting in a loss of 2 dollars. It's a way to make money when a stock goes down, however, it's very risky as your potential loss is unlimited (because the higher the stock goes, the more money you lose). In the gamestop case, the hedge fund shorted it at 8 dollars, but it's currently sitting over 300. So, if the lender that gave them the shares was to act on the loan (which apparently will happen this Friday), then the hedge fund will take a loss of 292 dollars per share.
This is an awesome post for someone like me who is a complete 💩🧠 normie newb on the subject. Thanks for sharing.
So what does the person loaning their stock out to these hedge funds recieve in all this?
Generally they charge a fee or interest. It's usually beneficial because many low risk funds will generally hold long positions, meaning they aren't swing trading or shorting often, and increase profit by loaning out the shares they're holding onto to other sellers that are less risk adverse.
I am not a financial guy so I don't understand any of the complexities, but from my understanding it is like betting against a company you think will fail. Somehow when the companies stock prices fall these hedge funds make money. But when the prices go up especially so drastically in this case going up like 50x in price they lose billions of dollars. That is literally all I know about them, so if you want to know how they actually work you will have to research it yourself.