by Ronan Manly
Bullion Star
What started in mid-January as a coordinated reaction against GameStop short sellers by a group of Reddit discussion forum day traders, has now turned into something entirely larger.
By now you will probably be aware of the recent meteoric rise in the share price of US company GameStop (GME) in late January after Reddit board r/WallStreetBets (WSB) organized to buy and push up the stock price of GME following its heavy shorting by Wall Street hedge funds.
Short Squeeze
Shorting is a strategy by which a listed company’s shares are borrowed and sold so as to drive the share price lower, with the intention of buying back at a lower price and profiting on the difference. However, the worst outcome for a short seller is when the share price rises and shares have to be bought back at a loss. Hence, when the share price turns and rises, this can often lead to a ‘short squeeze’ where panicked short sellers scramble to buy the shares in fear of further losses, in the process helping to drive the price even higher.