AP Explains: Shorting and ‘democratizing’ stocks

AP Explains: Shorting and ‘democratizing’ stocks

Across most of America, GameStop is just a place to buy video games. But on Wall Street, it’s become a battleground where swarms of smaller investors see themselves taking an epic stand against the 1%. (Jan. 28)

Some big institutions such as Citron Research and Melvin Capital had placed bets that GameStop shares would fall as the company tries to transform itself from a bricks and mortar retailer to a seller of online video games.

GameStop stock has rocketed from below $20 earlier to close around $350 Wednesday as a volunteer army of investors on social media sites like Reddit challenged big institutions who had placed market bets that the stock would fall.

The action was even wilder Thursday: The stock swung between $112 and $483. At midday it was down 27% at $255.

“You’re seeing a large army really of individual investors who have decided that they want to take on the big Wall Street hedge funds,” said Seth Sutel, the deputy financial markets editor at The Associated Press.

Robinhood, an online trading platform, is now moving to restrict trading in GameStop and other stocks that have soared recently due to rabid buying by smaller investors.

The company has forced huge, ground-shaking changes for the brokerage industry, such as its decision to charge zero commissions for customers trading stocks and exchange-traded funds.

That’s why some users took Thursday’s actions as an affront.

“In a way, there really is a kind of an Occupy Wall Street aspect to this,” Sutel said.

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