In recent weeks GameStop Corp (NYSE:GME) shares have surged following a flurry of social media activity from investors. This comes as US stocks edge lower on the red as investors react to a new stimulus package from the Biden Administration.
Social media excitement drive GameStop stock surge
The surge is due to a group of investors on the Reddit community, Wall Street Bets (WSB), buying shares of the beaten-down company. Some investors saw promise in the stock, and recently Melvin Capital shorted the stock, betting that it will drop. WSBers believed they could make the stock go “to the moon” and with the stock rising, they also made investment pushing price even higher. This caused a short squeeze forcing those who had bet against the stock to buy it to forestall bigger losses, and this sent the price higher.
It is important to note that the video gaming retail has not fundamentally changed in recent months. GameStop is still struggling and faces uncertainty following the rise of online shopping. However, the stock is up 1,800 this year rising from lows of $3 highs of $492.02 last Thursday. The dynamic of those betting against the stock to drop has driven the hype even further. For instance, a man from Missouri who put $4,500 bets on the stock via the Robinhood app has become a millionaire after the stock skyrocketed.
Robinhood restricts GameStop stock trading
Following the wild moves of the stock, trading apps imposed restrictions on trading the shares last week. For instance, Robinhood has been a popular trading app pitying itself as a being, not your father’s brokerage firm. The app drew the attention of what happened as the reason behind the restriction.
Over there past, there have been concerns about the platform gamifying stock trading to dangerous levels. The platform faces market manipulation allegations with one class-action lawsuit already filed against Robinhood. Robinhood said on Friday, it is market rules that forced it to have restrictions on GameStop stock trading. The whole thing seems like a case of excited social media users overrunning Wall Street Investors.