Rich people bet against companies like GameStop, then Reddit bet on GameStop just to ruin the rich peoples’ bets.
More complete answer:
Basically rich investors bet on bad companies (like GameStop) failing. It’s called a “stock short.” The way they “bet” is by borrowing a Gamestock stock from another person, then they sign a contract saying they will give them back the stock later, at a certain date.
How is this a bet? Because if the company loses value the investors win. If the company gains in value the investors lose. Once they borrow the stock (aka a tiny sliver in the ownership of the company) they immediately sell it, then later, because of their contract, they buy the same stock again to give back to the lender.
If the stock goes down during that time they make money. If it goes up they lose money.
So say that you owned one stock of Apple. I could borrow the stock from you and tell you I will give you back an Apple stock at the end of the month. I would then sell it for $100. By the end of the month, say the price of an Apple stock dropped to $1. Then I would just buy an Apple stock for $1 and give you back your one stock. I would bet a $99 profit.
That’s what the big shot investors did. But when Reddit saw that apple’s Gamestock’s stock was dropping, they decided to buy it just to increase its price so the big shot investors would fail. They had to return the stocks to the lenders, they already sold the stocks they were lent, so they had to buy stocks at a high price (thanks to Reddit) to give back to the lenders.
Oversimplified version:
Rich people bet against companies like GameStop, then Reddit bet on GameStop just to ruin the rich peoples’ bets.
More complete answer:
Basically rich investors bet on bad companies (like GameStop) failing. It’s called a “stock short.” The way they “bet” is by borrowing a Gamestock stock from another person, then they sign a contract saying they will give them back the stock later, at a certain date.
How is this a bet? Because if the company loses value the investors win. If the company gains in value the investors lose. Once they borrow the stock (aka a tiny sliver in the ownership of the company) they immediately sell it, then later, because of their contract, they buy the same stock again to give back to the lender.
If the stock goes down during that time they make money. If it goes up they lose money.
So say that you owned one stock of Apple. I could borrow the stock from you and tell you I will give you back an Apple stock at the end of the month. I would then sell it for $100. By the end of the month, say the price of an Apple stock dropped to $1. Then I would just buy an Apple stock for $1 and give you back your one stock. I would bet a $99 profit.
That’s what the big shot investors did. But when Reddit saw that
apple’sGamestock’s stock was dropping, they decided to buy it just to increase its price so the big shot investors would fail. They had to return the stocks to the lenders, they already sold the stocks they were lent, so they had to buy stocks at a high price (thanks to Reddit) to give back to the lenders.