Reddit users cause huge losses for Wall Street hedge funds

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Reddit users caused huge losses for Wall Street hedge funds involved in short selling stocks after collectively investing in shares that were expected to lose value.

The charge was led by users on subreddits such as r/wallstreetbets, a community of internet traders.

Users noted a huge amount of investment in short selling GameStop stock.

Short selling involves borrowing stocks, selling them at their current value, then waiting for the share price to fall, and buying the lower-value shares to replace the borrowed stocks. As a result, sellers keep the difference in the stock price and profit off of the decreased share price.

However, this strategy, which is fundamentally risky, was undermined by Redditors. Users encouraged each other to buy shares in GameStop.

As a result, GameStop’s share price increased monumentally. Some users were driven by the chance to make money using Wall Street’s insider strategies.

Meanwhile, others wanted to teach Wall Street elites a lesson.

Melvin Capital, a hedge fund that had bet a significant amount on GameStop shares falling in value, experienced huge losses.

Since then, Redditors have looked to other companies that have attracted short-sellers, including AMC and Nokia.

Social media users have celebrated the stock market upset as a lesson to Wall Street elites, saying they were beaten at their own game.

Others have noted it also highlights the gambling and betting nature that has proliferated through stock trading.

Feature image: Reddit

Read more: The top Reddit posts and topics of 2020

Megan Ellis, Editor
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