- Robert Plummer and Natalie Sherman
- Economics Editors – BBC News
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Image Released, Alex Patton
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Alex Patton says that before the Coronavirus pandemic, he knew nothing about buying and selling stocks
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Before the outbreak began, Alex Patton had never imagined he would become an amateur investor. Now, in the wake of the stock craze for the American gamestop company, Game Stop, he is more like an expert in the financial markets.
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“Before Covid, I knew nothing about the investment,” says a 28-year-old railway cybersecurity engineer who lives in Kingston upon Thames, southwest of London.
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But after the stock market tumbled in March and his pension savings were severely affected, he decided that he should – as he put it – “take a more active role in managing his money.”
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As a dual national with dual British and American nationalities, he had no difficulty creating an account on the American trading platform Robin Hood, which found itself at the center of the Game Stop fuss.
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Encouraged by his friends, Alex started to follow the comments of participants in the “Wall Street Bets” forum on the social networking site Reddit, a forum of 4 million people who usually discuss topics related to stocks and investment opportunities.
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“I told myself this is crazy,” he tells the BBC. “A lot of people are losing a lot of money.”
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“I didn’t think about it, until a friend told me that I should follow what was going on with GameStop stocks, and I noticed that some people on Reddit are doing an impressive job studying these stocks.”
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What happened?
With fewer people going out and selling most of the electronic games on the Internet, GameStop is not making a profit.
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People who buy and sell stocks often bet on companies that they believe will not do well in the future. They borrow the company’s shares (which they expect to decline) and sell them immediately, then buy them again and return them, which is termed “short buying.”
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GameStop was one of the companies that many hedge funds had bet that they would see a decline in the value of their shares.
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This time, however, a large number of subscribers to the Wall Street Betting Forum on Reddit have bought shares in GameStop on mutual advice.
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And when the demand for the company’s shares increased, its prices jumped sharply, which no one expected, and everyone who borrowed the company’s shares had to pay them back after buying them at high prices.
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risk
Alex says hedge funds have wagered billions of dollars on the fall in GameStop’s stock prices, and some research on Reddit indicated that short selling made up more than 100% of Gamestop’s current shares.
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“Some individuals have done research that shows the precarious situation of hedge funds. So we decided that we can take advantage of that. It’s an opportunity.”
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And with the craze that followed, unprofessional investors drove the share price up by more than 700%.
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Alex did well, investing $ 1,000 in GameStope shares and earning an estimated $ 2,000 in profit. But he was one of those lucky ones to sell shares in time.
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“The theory was that as the stock price continued to rise, people short of buying would have to buy them at any price in order to pay back the shares they borrowed again,” Alex says.
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But with this activity attracting the attention of regulatory authorities this week, retail investors suddenly found that they were suspended by their trading platforms and thus unable to continue buying shares of GameStoop and other companies.
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“They were assuming that we individual investors could not afford the loss, while hedge funds that took great risks and incurred incredible losses were allowed to continue their business as usual,” Alex says.
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Although Alex has not been hurt financially, he is still agonized by what he considers unjustly.
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“There is a huge gap between the ordinary middle class and the working class on the one hand and hedge funds with billions on the other. There are others who have been affected by much more than me,” he says.
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Image Released, Myron Sakkas
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Myron Sacas says that individual investors like him are extremely angry
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Myron Sakas, who is 18 years old and studies at the University of Warwick in Britain, lost 30 pounds because of Jim Stop’s shares, where he owned them for “two hours” and then sold them after he followed what happened.
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Sakas has created an account on the 212 trading platform since August of last year and hopes to go into investment banking services after obtaining his college degree.
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At the moment, however, he is disappointed by what he sees as “market manipulation” directed at people like him.
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For him, there was a specific target in the Jim Stop stock wars, and they are “the people who were behind the 2008 financial crisis and were not held responsible at all,” as he put it.
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“We understand that there are risks, but this was not a real breakdown. Rather, it was caused by people who protect the interests of companies, while ordinary individuals lose again.”
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“This is what happens when ordinary people try to make money in a system in which only the rich dealers make money,” he told the BBC.
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“They support the free capitalist market when it is in their interest. What we saw today was not a free market and it forced a lot of people to lose huge amounts of money.”
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Myron says he has been banned from using his account on the trading platform until his identity is verified, but when he gains access, he plans to withdraw his $ 1,000 balance and suspend the account.
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“Maybe I won’t be trading for some time. I have other things to do,” he adds.
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Image Released, Melissa Holdren
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Melissa Holdren says the financial system needs to be reconsidered
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“Doesn’t sound right.”
On social media, investors called on their fellow dealers not to sell their shares to avoid further losses, and launched an attack on trading platforms to impose restrictions on purchases.
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Melissa Holdren, a nurse living in the state of Massachusetts, expressed her anger at the restrictions practiced by trading platforms, which prompted her to buy shares in one of the affected companies.
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Through her account at the Fidelity brokerage firm known for its mutual funds, Holdren bought shares worth $ 500 in AMC Entertainment, whose shares have been restricted – as happened with GameStop – by some brokerage firms.
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It was the first time for the 43-year-old nurse who had always relied on big companies to manage her pension investment.
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“I think it is questionable for a private company to unilaterally stop trading shares. This does not seem correct. If you are concerned about market volatility, why are you banning only one-sided trading?”
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Melissa, whose grandfather was making a living working as an independent stock trader, said she knew she would lose money if AMC’s shares fell, but she had hoped her limited investment would help the movie chain survive, as well as her desire to take a stand against Wall Street Practices.
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“In general, we need to review our financial system,” she said. “After the financial crisis in 2008, it became clear that a large part of the financial market is separate from reality in a way that I do not think is healthy.”
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“I think it is a mistake to only care about what is happening on Reddit while not paying equal attention to the bigger picture,” she added.
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