Tech

Reddit vs. Wall Street: Gamestop shares plummet significantly

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The shares of the video game store chain GameStop, which has become a symbol of a trial of strength between hedge funds and an investor community, temporarily fell by around 60 percent on Tuesday. On Monday, the price on the Frankfurt Stock Exchange had fallen by around 30 percent. After the crash on Tuesday afternoon, however, a slight upward trend set in again, the share is currently quoted around 90 euros. Last Thursday the share was well over 400 euros, at the beginning of January it was 14 euros.

Shares from Gamestop and AMC, among others, have been particularly popular with users of the Reddit platform in recent weeks. In doing so, they opposed so-called short sellers (in German short sellers) such as Citron Research and Melvin Capital, who had made massive bets on falling prices for the companies in question. As a result, share prices shot up and some hedge funds suffered extremely heavy losses, which are currently said to amount to around $ 20 billion.

In the meantime, the short sellers have significantly reduced their positions in GameStop shares, writes the Handelsblatt citing data from the financial service provider S3. Accordingly, the shortsellers have reduced their quota, with which they had speculated on falling prices, to 53 percent of the tradable shares. At times, short positions were taken on well over 100 percent of the stock.

A short sale describes the strategy of borrowing stocks in the hope of falling prices – only to buy them back at a lower price and then return them when the loan agreement comes due. But if the price rises, the short seller makes losses.

If another investor also makes such a bet on the shares that were sold short, then the number of short positions could also be higher than that of the existing shares, a spokesman for the German Stock Institute explained to heise online. In Germany, such short positions from 0.1 percent of the number of shares must be reported to the financial supervisory authority Bafin, from 0.5 percent there is a reporting requirement in the Federal Gazette, according to the Aktieninstitut.

In the r / wallstreetbets community on Reddit, the heart of the investor movement, so to speak, many apparently continue to fully rely on buying and holding the Gamestop share. In a much discussed article hedge funds are accused of artificially pushing the price down. They would follow a strategy called “short ladder” and push each other’s stocks back and forth at high speed.

At the same time, the trading restrictions on trading apps such as Robinhood, which has now come under heavy criticism, have deprived small investors of the chance to counter this. And last but not least, the hedge funds are also suspected, to hide the extent of their short sales.

Trading app Robinhood announced meanwhile that it had raised another 2.4 billion US dollars from investors. Including a financial injection from Friday, the recently raised funds now amounted to 3.4 billion dollars, the US company said on the company blog. In view of the recent speculation boom, Robinhood is under increased pressure to obtain collateral for the massively increased trading volume that is processed via the app.

A report by politico Robinhood CEO Vlad Tenev will answer questions on February 18 at a hearing in the finance committee of the US House of Representatives on the Gamestop stock market war. US politicians such as committee chairman Maxine Waters had voiced suspicions that hedge funds might have influenced Robinhood’s decision to restrict trade. The financial service provider Citadel is often mentioned, which operates a hedge fund and offers trading systems. When Market Maker the company also has a close relationship with Robinhood. Citadel had reportedly denied it was responsible for the restrictions. (With material from the dpa) /


(axk)

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