Wall Street is “losings its mind” over retail traders that have banded together to take on at least two hedge funds that bet the shares of GameStop would fall, Fox Business host Charles Payne explained Wednesday.
Thanks to their efforts, the video game retailer’s stocks have surged.
"These hedge funds selling this stock, they don’t own the stock, so they borrow it," Payne explained. "Imagine you borrow a stock that’s trading at $10 and then you drive the share price down and then you buy it back for a dollar. You make the difference, nine bucks."
Short-sellers, Payne explained, are investors who speculate the price of a stock or security will fall in value. The strategy involves borrowing shares in order to sell them with the hopes of buying them back at a lower price in the future.
"They are allowed to short so much stock," he said. " Do you know the amount of stock that was out on GameStop? Let’s just say 100% of the shares that are out, they shorted 140% of the stocks, so they borrowed the same stock over and over, and over, the same shares and sold it into the market. (Fox News)
Payne called it a “short squeeze” and said “it’s working.”
According to The New York Times, GameStop's market value jumped from $2 billion to more than $24 billion "in a matter of days." Share prices for AMC Theatres and Nokia have also been driven up.
"Wall Street is losing its mind and Wall Street now wants to change the rules of the game because a bunch of people with accounts ranging from $500 to $2,500 are taking down the billionaires,” Payne said.
On Wednesday, the platform Discord banned the r/wallstreetbets server, alleging it violated its hate speech policies.
They claimed the decision was not motivated by the group’s trading discussions.
"To be clear, we did not ban this server due to financial fraud related to GameStop or other stocks. Discord welcomes a broad variety of personal-finance discussions, from investment clubs and day traders to college students and professional financial advisors," a company representative said, reports Business Insider. "We are monitoring this situation, and in the event there are allegations of illegal activities we will cooperate with authorities as appropriate."
Not many were buying that excuse, with some calling it "nakedly corrupt."