How Reddit Broke the Stock Market

Over the last few weeks, media coverage over Wall Street has exploded as a group of users from the popular social media service Reddit have completely changed the way the stock market is viewed by the average person. The stock market is complicated, and while coverage of the event has been widespread, it’s easy to become disoriented by all of the details of the situation. 

The first thing that needs to be understood in order to properly explain the Reddit situation is a concept known as short selling. This is when investors predict that a certain company’s stock will go down, by selling and repurchasing stocks from that company. One company that was being shorted was GameStop, a video game retailer whose business had been poor throughout the pandemic. 

The platform Reddit features a number of small groups known as subreddits, which focus on different topics. One of these is r/WallStreetBets, commonly known as WSB. This group was focused on discussing the stock market and various investments. Members of this group had been known to discuss GameStop stock in the past, but near the end of January, the group took things to a new level, by purchasing a large amount of GameStop stocks in order to increase the value of this stock. This act would not only save GameStop from the brink of bankruptcy

but also cost the billionaire hedge funds who had been short selling GameStop millions of dollars.

At its peak, GameStop stock was up nearly 1700% from where it was at the start of the year, but things took a dive when the investment app Robinhood, removed the ability to purchase GameStop stocks from the app. This caused the stock to nosedive again, and the stock has dropped over 80% since then.  Robinhood claims they removed GameStop stock purchases in order to protect their users, but many have speculated that this was actually done to protect the wealthy hedge funds who invest in Robinhood.

It’s impossible to say what the long-term effects of this event will be, however, the CEO of Robinhood is expected to testify in front of Congress sometime in February, so the situation is still progressing.