How Reddit Games the GameStop Stock

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There are three things to remember as you watch the chaos unfolding with GameStop's stock price. First, Wall Street is just what happens when you mix money with feelings. Second, the internet is real life. And third, the street always wins, especially if you're trading with Robinhood. 

If you haven't been paying attention, GameStop's stock has been soaring in a remarkably volatile fashion; On January 22nd, GameStop zoomed upward 69 percent before it triggered a circuit breaker halt. 

On the surface, this doesn't make sense. GameStop, founded a year before blockbuster, is part of a dwindling cohort of IRL businesses that are being starved by online marketplaces. These days, you can just buy video games over the internet instead of going to a soul-killing strip mall in your city to buy a physical copy of the game. GameStop's business has been suffering as a result. 

If you think GameStop will fail and the stock will go down, or even that the company will go bankrupt, there’s a way to make money on that. Typically, this is done by short selling — a practice where you borrow shares for a fee and sell them for (ideally) a high price, then buy them back at (ideally) a lower price to return them. This can make you a lot of money, especially if the company goes bankrupt and you don’t have to return the stock!

The thing about short selling, though, is that you lose money if the stock goes up, and your losses are potentially infinite if the stock keeps going up. There are several other bad things that can also happen, such as an increase in fees or the original investor wanting their stock back. This means some shorts will be forced to “cover,” or buy the stock back at a high price, which sends the price even higher.