20 THE DISRUPTION ISSUE
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he start of 2021 saw one of the most seismic and disruptive financial events in years take place on Wall Street.
A large group of gamers saved the US high street relic GameStop, amongst other declining companies, from going under by shorting stock on them, and managed to give the Establishment the middle finger in the process. The enormity of what took place won’t be completely felt or understood for some time but, in the short-term, billions of dollars have been lost by hedge funds and stockbrokers. To begin to examine what happened, we must first understand what ‘shorting’ is. Shorting, or short selling as it is officially known, is placing a very risky bet that a company’s stock, or share price, is going to go down and eventually the company will go out of business. The earlier someone invests in a short, the bigger the reward because you earn more the longer the price decreases. Shorting is the reason for the 2008-2009 Financial Crash, where hedge fund managers were shorting on the value of subprime mortgages. To best understand the causes of the Financial Crash and how shorting works, I recommend watching the film The Big Short. In the case of GameStop, there was a ‘short squeeze’ which is when share prices
rapidly rise because so many people are buying stock in a shorted company, forcing the investors who placed the short to also buy that stock to limit their losses. This happens when there is more demand for shares than there is supply. A channel called r/WallStreetBets, on the cult social media platform Reddit, has been operating under the radar for years. It gives people, with no background in finance, advice on stock trading and buying shares. Users were able to call on the gaming community, who were upset at GameStop closing down, to save the company by downloading trading apps like Robinhood in the US and Trading 212 in the UK so they could buy shares in the company. The GameStop short squeeze took place early January and they managed to increase the share price by 92.7% in a day. Investors were so successful that Tesla and SpaceX founder Elon Musk tweeted the link to r/WallStreetBets which encouraged his 46 million Twitter followers to join in. Immediately after Musk’s tweet, the GameStop share price rose to over $200. The day after, they saw how much of a disruption they had caused to the global stock markets and they branched out to save other declining companies, including AMC Cinemas, BlackBerry and Nokia. The more the share price rose, the more money
