Romy H week 14 The Stock Issue for Dummies

 

The question is what happens when people get too good at your own game? Boom- roasted. That’s pretty much what happened this week- rich businessmen/hedge funds(to be explained later) lost money because people figured out exactly how to manipulate stocks and money for personal benefit. I’ll explain to the best of my ability, and in the most basic way, what happened and why it isn’t quite fair. 

Here’s what you have to understand. There are calls, puts, short positions, and long positions; it’s complicated and there are more offers than just that, but those are most important for now. Hedge funds are a group of investors that pretty much gamble with stocks- hoping for a profit. When they see that a company’s stock is steadily decreasing, they will buy a short position/a put. When they buy that stock they have a certain time frame where they have to sell their stock back. They are betting that the stock price will go down, so they make a profit. 

Here’s a super simple example. Let’s say I “borrow” 1 banana stock for 10 dollars from monkeys and say that I’ll give it back to them by Tuesday. I got that banana stock for 10 dollars, but I had a feeling that the price would decrease. I then sell the banana stock to someone for those $10. The next day, I was lucky and the price did go down to $8. Then I buy the stock back for $8 and give it back to the monkeys making a profit of $2.

This is what big hedge funds are doing, but with hundreds of thousands and even millions of dollars. The general public realized what they were doing and decided to give them a taste of their own medicine. People started buying the stock of businesses that hedge funds thought would decrease. When you buy stocks and options, the stock price goes up, so those hedge funds would lose money. That’s exactly what happened with Game Stop. As this article states, “champions of the 99% are cheering louder from the sidelines, saying the moves mean that hedge funds, Wall Street and the 1% are finally getting their comeuppance(a punishment someone deserves).”

The thing that is bothering most people is that they stopped the ability to buy those stocks- which was what made the hedge funds lose money. Our economy is supposed to be free and open, so restrictions are something that might be illegal. It seems like they are only putting restrictions on stocks when it benefits them, which isn’t fair. The general public caught on to their game and beat them to it. Nobody really knows if they will be getting in trouble or how this will work out legally...yet. 

This whole situation is very complicated and there’s a lot more to it that I don’t understand completely. This is what I could gather from my research and tried to make it simple. 

What do you think? Do you think it’s fair that brokers stopped the ability to buy stocks because hedge funds would lose money? 

https://apnews.com/article/gamestop-stock-surge-explained-fb377363d1b04809706619a6bcc9e549