What’s Happening to the Stock Market?

Right now the stock market is going through some very crazy times. Things are happening that have never been seen before. With all of this happening, it is good to understand what is going on and why the stock market is doing what it is doing.

Hedge Funds
In simple terms, a hedge fund is when a group of people pool together money which will be managed and invested for them. Depending on the hedge fund, it can be carefully and safely managed, however, the majority of hedge funds are managed aggressively and there is a lot of risk involved. The main purpose of a hedge fund is to make high returns with little risk, but there is often a lot of risk involved.

Short Selling
Short selling is a trading method within the stock market. People will borrow a stock, sell the stock, and then buy it back to repay the lender. The goal is to sell the stock when it is worth more, and then buy it back when it has decreased in value. Short selling often happens on corporations that are slowly going out of business and will likely be gone in a couple of years.

Reddit Investors
Groups of people on reddit have caught on to these high risk market strategies that people are taking advantage of. These people decided to start buying and holding these stocks, causing the stocks to go up in value, and making these short sellers lose money. When a short seller borrows a stock and the stock goes up in value, the short seller will lose money.

Gamestop
By far the most outstanding instance of these reddit investors making the stocks go up is the Gamestop stock. It is pretty easy to figure out that Gamestop is losing business and shouldn’t be around too much longer. Short sellers were taking advantage of this and making money off of it. People started buying and holding these stocks, causing the value of gamestop to increase about 500 percent in the span of a week, causing these short sellers and hedge fund owners to lose billions of dollars.

Overall Stock Market
There are a number of different stocks that have seen the same thing as Gamestop. The overwhelming amount of people short selling stocks makes the whole stock market unpredictable. When people start to buy stocks that are constantly decreasing in value, it throws the short sellers off and causes a lot of controversy. People are calling it market manipulation, but it is really just being a smart economist.