# Gamestop



## cremeegg (30 Jan 2021)

The story so far.

Shorting is selling shares that you do not own for delivery at a future date. Say the share is trading at €10 and you sell it for delivery in a month. You expect that the share price will drop and you will be able to buy it in a month for less than €10. That is perfectly respectable business practice

Now if you are a fancy Hedge Fund and you tell everyone that you are shorting Gamestop, people will think that is where the smart money is and that should push the price down. That is not respectable business practice.

If someone can buy up all the shares in the company then Fancy hedge Fund will be forced to buy at whatever price the seller wants as they must deliver the shares they have sold.

This is called a short squeeze. It happened in Volkswagen in 2008 https://www.ft.com/content/0a58b63a-4294-3e07-8390-c3aabef39a26

Recently a social media frenzy of daytraders bought up shares in Gamestop and created a short squeeze. It looks like great fun, but I wouldn't like to rely too much on owning shares in a company that is fundamentally worth about 10% of its current market cap.


Along comes Redit and Robinhood, they aggregate lots of


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## odyssey06 (30 Jan 2021)

cremeegg said:


> The story so far.
> 
> Along comes Redit and Robinhood, they aggregate lots of



Await closure on this story... or the Hollywood movie version


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## landlord (30 Jan 2021)

I am very disappointed that Robin Hood have now restricted purchase of certain stocks. One of them being first majestic silver minor which I own. They have also restricted SLV and of course game stop and many others. 
The conspiracy theory is that Robin Hood which charges zero commission on trades, has done a deal with the hedge funds, (some of which are haemorrhaging cash) to restrict these trades. The small mum and pop investors can never be allowed to beat Wall Street!!!! 
I’m sure it’s not quite as simple as that and possibly there are some regulatory reasons for these restrictions. Perhaps Robin hood has liquidity issues, which makes sense considering they charge zero commission.


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## flyingfolly (30 Jan 2021)

I bought 194 shares at 77.90 and sold on Friday at 333. Made about 50k for buying and selling in a week. But its going to get nasty come Monday - if the people who control the market are going to lose, they'll change the rules and everyone holding GME in large amounts will lose badly.


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## WolfeTone (30 Jan 2021)

cremeegg said:


> Now if you are a fancy Hedge Fund and you tell everyone that you are shorting Gamestop, people will think that is where the smart money is and that should push the price down. That is not respectable business practice.



Isnt a critical part of this story the 'naked' short sell also? That is, selling shares that they don't own and those shares amounting to more than 100% of the actual issued shares? I think in this instance, somewhere between 120%-130%.
I dont know how these things operate but it is clear corrupt practices overseen by very sleepy regulators, until the little guys get in of course.

It is a fascinating story so far.


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## PebbleBeach2020 (30 Jan 2021)

audioflaps said:


> I bought 194 shares at 77.90 and sold on Friday at 333. Made about 50k for buying and selling in a week. But its going to get nasty come Monday - if the people who control the market are going to lose, they'll change the rules and everyone holding GME in large amounts will lose badly.


Fair play. That is done chunk of change..

Do you play the markets regularly?


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## lledlledlled (31 Jan 2021)

Thursday's carry-on at Robin Hood was disgraceful. They actively stopped traders from buying while allowing traders to sell, thereby artificially impacting the price. 
Even now, they have severe restrictions on buying, yet none on selling. 
Free market!?


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## tecate (31 Jan 2021)

WolfeTone said:


> Isnt a critical part of this story the 'naked' short sell also? That is, selling shares that they don't own and those shares amounting to more than 100% of the actual issued shares? I think in this instance, somewhere between 120%-130%.


Tell me Wolfie, wouldn't naked shorting be complete and utter fraud? So effectively there's no proper record of ownership of equities - which facilitates this fraud? Who will be jailed for the 38% excess claims over and above actual Gamestop stock that emerged as part of this sham?

Over and above that, Robinhood are selling customer data (order flow) whilst unwitting customers think they're getting free trading - same model as facebook, google, etc - the customer is the product. Ponzi scheme artist, Bernie Madoff perfected the practice. Armed with this data, market makers can act on both sides of a trade despite the glaring conflict of interest.
The customer never actually has full legal title to an equity stock. There's no real time settlement with an opaque web of intermediaries (between brokers, market makers, centralised clearing houses, etc)  in the middle and the counterparty  risk and shenanigans that goes with that.



			
				landlord said:
			
		

> Perhaps Robinhood has liquidity issues


Robinhood's CEO went on network TV and stated that the company had no liquidity issue (in responding to questions to explain away the rug pull in terms of preventing customers from buying Gamestop stock). Within hours, it emerged that it had raised $1 billion from investors.

If only there was a better way...


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## Itchy (31 Jan 2021)

lledlledlled said:


> Thursday's carry-on at Robin Hood was disgraceful. They actively stopped traders from buying while allowing traders to sell, thereby artificially impacting the price.
> Even now, they have severe restrictions on buying, yet none on selling.
> Free market!?



That was a very shady move my RH. If the reason they stopped the buying was to de-risk their book, they could have increased the margin requirements instead. Stopping the buying, stopped the gamma squeeze in its tracks.


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## flyingfolly (31 Jan 2021)

PebbleBeach2020 said:


> Fair play. That is done chunk of change..
> 
> Do you play the markets regularly?



I invest using Degiro regularly but I wouldn't say I "play the markets" though. I was just very lucky and to be honest it was very dangerous and I shouldn't have done it. I invested 4k and then decided to use another 10k on margin, so I could have lost 14k in total. I decided to sell on Friday as the risk was just not worth it, plus Degiro decided to call in the margin to be closed by Monday as GME was too volatile for them to allow margin on it anymore. So if the price took a dive on Monday, I wouldn't be able to make it back in time. 

It also wasn't worth it from a mental health point of view. I wasn't able to sleep most of the week. The value of my shares increased $26k in one day, dropped $10k in one day, up $36k the next day, and dropped $56k in the space of 10 mins one day. Once it went back up enough I just sold. Reminds me of bitcoin - a lot of people are going to get burned by GME at some point.


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## LoveTrees (31 Jan 2021)

audioflaps said:


> I bought 194 shares at 77.90 and sold on Friday at 333. Made about 50k for buying and selling in a week. But its going to get nasty come Monday - if the people who control the market are going to lose, they'll change the rules and everyone holding GME in large amounts will lose badly.


Well done! You got rewarded for taking the risk and cgt tax on that will help with the vaccines distribution!


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## joe sod (31 Jan 2021)

audioflaps said:


> I invest using Degiro regularly but I wouldn't say I "play the markets" though. I was just very lucky and to be honest it was very dangerous and I shouldn't have done it. I invested 4k and then decided to use another 10k on margin,


Didn't know Degiro allowed people use margin. did you have to take an exam to prove you understood the risks, I had to take an "exam" to prove I understood "complex investments" just to buy an investment trust recently and it wasn't a  trivial one either. I presume you were always able to trade it though on degiro not like Robinhood so you could have exited it at any time. Id say Thursday night was the sleepless one. Fair play though


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## LoveTrees (31 Jan 2021)

tecate said:


> Robinhood's CEO went on network TV and stated that the company had no liquidity issue


That scares me a lot. The new subprime is with all those zero cost brokers to my view


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## lledlledlled (31 Jan 2021)

Robin Hood don't make money from trades. If they had no liquidity issue, why did they prevent people from buying but not from selling? 

We're they influenced by the Hedge Funds?
Some analysts estimate Thursday's actions by RH saved the Hedge Funds up to $6bn. 

There may be a reasonable explanation but there also appears to be grounds for an SEC investigation.  

Hopefully the long term impact of all of this is a restriction or banning of short selling.


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## tecate (31 Jan 2021)

lledlledlled said:


> There may be a reasonable explanation but there also appears to be grounds for an SEC investigation.


Twitch founder, Justin Kan was issued with a cease and desist for tweeting a tip that he got claiming that Citadel re-up'ed their shorts just before Robinhood locked down GME purchasing. Hopefully it all comes out in the wash.


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## EmmDee (1 Feb 2021)

WolfeTone said:


> Isnt a critical part of this story the 'naked' short sell also? That is, selling shares that they don't own and those shares amounting to more than 100% of the actual issued shares? I think in this instance, somewhere between 120%-130%.
> I dont know how these things operate but it is clear corrupt practices overseen by very sleepy regulators, until the little guys get in of course.
> 
> It is a fascinating story so far.



Do you have specific "corrupt" practices in mind - or is it a general description of all financial markets?


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## NoRegretsCoyote (1 Feb 2021)

People are taking big bets. Some are winning, some are losing. It's not stopping Gamestop from buying and selling video games from stores or whatever else they do.

I have not seen anything in this story that necessitates either more or less public intervention.


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## Colm Fagan (1 Feb 2021)

Here is what I posted on this topic on another forum:
_"I have conflicting views.  Like everyone, I enjoy seeing hedge funds get stuffed occasionally. The downside is that it will put professionals off short-selling if a group of amateurs, conspiring together, can exploit the unlimited upside to bankrupt them.  Short sellers can discharge a valuable service to society.  Back in 2008, if the Irish government had heeded the hedge funds that were short-selling the Irish banks, rather than the bureaucrats (libel laws prevent me from using a different noun) who insisted the banks were solvent, Irish taxpayers might have been spared a few billion."   _


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## NoRegretsCoyote (1 Feb 2021)

Colm Fagan said:


> The downside is that it will put professionals off short-selling if a group of amateurs, conspiring together, can exploit the unlimited upside to bankrupt them.



I agree.

But this was a novelty. It will be hard to muster this kind of force again. A little guy can always drop out and bet against the bet against the bet!


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## flyingfolly (1 Feb 2021)

joe sod said:


> Didn't know Degiro allowed people use margin. did you have to take an exam to prove you understood the risks, I had to take an "exam" to prove I understood "complex investments" just to buy an investment trust recently and it wasn't a  trivial one either. I presume you were always able to trade it though on degiro not like Robinhood so you could have exited it at any time. Id say Thursday night was the sleepless one. Fair play though



Yes you have to pass an exam to upgrade your Degiro account


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## dereko1969 (1 Feb 2021)

Colm Fagan said:


> Here is what I posted on this topic on another forum:
> _"I have conflicting views.  Like everyone, I enjoy seeing hedge funds get stuffed occasionally. The downside is that it will put professionals off short-selling if a group of amateurs, conspiring together, can exploit the unlimited upside to bankrupt them.  Short sellers can discharge a valuable service to society.  Back in 2008, if the Irish government had heeded the hedge funds that were short-selling the Irish banks, rather than the bureaucrats (libel laws prevent me from using a different noun) who insisted the banks were solvent, Irish taxpayers might have been spared a few billion."   _


What alternative should the Govt have taken if it heeded the hedge funds?


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## john luc (1 Feb 2021)

The idea that back in 2008 the government should have listened to hedge funds is a farce. The damage was already done. Hedge funds are spinning the story to pretend they are somehow all knowing but really that are parasites to the financial system. Some day in a brave new world we may reset the system to have a proper stock market that serves the true interests of their respective economy's and let the elite bee like drones get tossed out as they do nothing good.


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## jpd (1 Feb 2021)

Hedge funds who short shares do actually provide a service to the investment community in two ways - 

they provide liquidity in providing shares to buy 
they do some price discovery work and present an alternative view to the idea that share prices only go one way (not always well done, but that's a another argument)
When they get it wrong - as apparently Melvin Capital did then they make huge losses - but then no one said that Hedge fund managers know everything, well except Hedge fund managers

And if enough small investors are prepared to buy shares at $200, $300 and lose their investment well the Hedge Funds will learn a lesson and maybe provide better price discovery for a while


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## john luc (1 Feb 2021)

jpd said:


> Hedge funds who short shares do actually provide a service to the investment community in two ways -
> 
> they provide liquidity in providing shares to buy
> they do some price discovery work and present an alternative view to the idea that share prices only go one way (not always well done, but that's a another argument)
> ...


I heard this said many times and personally I don't fully accept it. Often pushed by paid sponsors to suggest a, "you need us as we are good". Truth is they only really serve their own interests and they can often be the cause of a lot of harm. Bigger story here so probably the wrong thread.


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## joe sod (1 Feb 2021)

john luc said:


> Truth is they only really serve their own interests and they can often be the cause of a lot of harm. Bigger story here so probably the wrong thread.


Yea if they were really all about price discovery and stopping bubbles they would be all over Tesla now but they prefer to gang up on small stocks like gamestop. Many of the hedge funds are probably involved in inflating the Tesla bubble aswell


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## EmmDee (1 Feb 2021)

joe sod said:


> Yea if they were really all about price discovery and stopping bubbles they would be all over Tesla now but they prefer to gang up on small stocks like gamestop. Many of the hedge funds are probably involved in inflating the Tesla bubble aswell



Elon Musk is constantly giving out about the short sellers of Tesla. Explains why he came out again about it over the last week - stating people shouldn't sell things they don't have (from the guy selling cars not yet ready)


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## lledlledlled (1 Feb 2021)

NoRegretsCoyote said:


> People are taking big bets. Some are winning, some are losing. It's not stopping Gamestop from buying and selling video games from stores or whatever else they do.
> 
> I have not seen anything in this story that necessitates either more or less public intervention.



Most of the 'bets' are on the Robin Hood app. When this began really hurting the Hedge Funds in favours of these bets, the app actively prevented further buying of Gamestop shares, while allowing selling of these same shares.
Obviously, this reduced the price of the share.
Surely that intervention looks suspicious?


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## EmmDee (1 Feb 2021)

john luc said:


> I heard this said many times and personally I don't fully accept it. Often pushed by paid sponsors to suggest a, "you need us as we are good". Truth is they only really serve their own interests and they can often be the cause of a lot of harm. Bigger story here so probably the wrong thread.



First off - "hedge funds" is a catch all phrase which covers a multitude of trading strategies. Initially they were funds that offered different return characteristics to the general market which would be a hedge within a portfolio of investments. And that is still the case. There are many hedge funds who target fairly ordinary returns but aim to reduce the volatility of the returns.

Short selling by itself isn't necessairily a predatory strategy. Many long / short funds are effectively about focussing on the relative merits of a particular company verus the industry. So if I think AIB has a better strategy than Bank of Ireland but I want to avoid outright exposure to the banking industry, I can buy AIB, sell BOI - I hedge out some of the macro risk.

Then, apart from providing liquidity, borrowing stock has long provided additional returns to long only buy and hold funds - especially pension funds who are mandated to hold the general market. These types of funds are adding an additional percent or two of return to long only funds by borrowing the entire portfolio for the year. So there is benefit to the pension and insurance funds.

Finally, short selling has long been around - it has always been a tool to shift risk and even out demand and supply. Christmas funds which used be run by local shops and butchers are sort of a short sale of groceries. The big agricultural exchanges in the US allowed farmers short sell their produce in return for guaranteed prices. It's nothing new


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## EmmDee (1 Feb 2021)

lledlledlled said:


> Surely that intervention looks suspicious?



Why is the simplest explanation in these situation overlooked. US Brokers are requried to post collateral to the clearing houses based on the value fo the trading they are clearing. A small, under capitalised internet broker sees a massive increase in volume and value and takes steps to cap it until they can address their capital requirements - would the simpler, if less shocking explanation.

There are often halts put on trading particular stocks in most US brokers - especially if trading activity seems unusal or suspicious. The onus is on the broker to ensure there isn't any breach of trading laws. So it's usually short term while they investigate and then lift restrictions. It just doesn't make the news


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## cremeegg (1 Feb 2021)

EmmDee said:


> Short selling by itself isn't necessairily a predatory strategy.



Agreed, but short selling and telling everyone that you have done so, 'cause you are a smart investor has the effect (usually) of driving the price down. Not just betting on the race but effecting the outcome.


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## EmmDee (1 Feb 2021)

cremeegg said:


> Agreed, but short selling and telling everyone that you have done so, 'cause you are a smart investor has the effect (usually) of driving the price down. Not just betting on the race but effecting the outcome.



Yeah - I think what the reddit crowd spotted was a market disfunction which they jumped on - like a prefect arbitrage. Where I worry that many may get burned is thinking it is a permanent adjustment and that the company share price was way under-valued because of fundamentals purely driven by short sellers.

The reality is that a "brick and mortar" seller of physical games is not a long term growth business. If the company doesn't have a new strategy, the people predicting a trend towards zero will be correct. This will be seen as a temporary blip because of a short term technical squeeze. And people jumping in at $300 and being advised to hold on are in danger of being the ones that get hurt


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## WolfeTone (1 Feb 2021)

EmmDee said:


> Do you have specific "corrupt" practices in mind - or is it a general description of all financial markets?



Yeh, in this instance 'naked short-selling'. My understanding is that such a practice is illegal?


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## peemac (1 Feb 2021)

It's laughable that most US states ban gambling and bookie shops.

But no issues day trading on stocks, shares and crypto currencies.

It's the "gambling" element that drives this type of market. And just like gambling on a horse, only bet what you can afford to lose.

Unfortunately too many bet too much and it ends in tears for them.


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## John216 (1 Feb 2021)

Has there been much mention of the Gamestop/Reddit phenomenon in irish media in the last few days? It's quite a story in the US.


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## Itchy (1 Feb 2021)

EmmDee said:


> Why is the simplest explanation in these situation overlooked. US Brokers are requried to post collateral to the clearing houses based on the value fo the trading they are clearing. A small, under capitalised internet broker sees a massive increase in volume and value and takes steps to cap it until they can address their capital requirements - would the simpler, if less shocking explanation.
> 
> There are often halts put on trading particular stocks in most US brokers - especially if trading activity seems unusal or suspicious. The onus is on the broker to ensure there isn't any breach of trading laws. So it's usually short term while they investigate and then lift restrictions. It just doesn't make the news



That could be a plausible explanation if it wasn't for the relationship between Robinhood, Citadel and Melvin. 

If collateral requirements were the issue surely increasing margin requirements would have achieved the same result without giving such advantage to the market makers. That's what other brokers (who don't sell their order flow) did. Also RH CEO said there were no liquidity issues (though he did simultaneously raise a yard). RH's conduct stinks.


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## odyssey06 (1 Feb 2021)

John216 said:


> Has there been much mention of the Gamestop/Reddit phenomenon in irish media in the last few days? It's quite a story in the US.



Its become an internet meme thats where I first started coming across it

Not headline news but some coverage 








						'The French Revolution of finance': Why Reddit users and Wall Street are doing battle over GameStop
					

Major Wall Street hedge funds have lost billions in recent days.




					www.thejournal.ie


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## WolfeTone (1 Feb 2021)

peemac said:


> Unfortunately too many bet too much and it ends in tears for them.



I may have the wrong end of the stick here, but I don't endear to this sentiment. 
The small retail investors who 'piled in' knew exactly what they were doing. It is questionable as to how much they did actually pile in. My understanding is that the biggest losers were the big-boy hedge funds, who also know what risks they are taking. So it's strange to hear this type of sentiment. 
Realistically retail investors could only drive the price so high. But it was enough to expose the naked shorts trades at play forcing the big hedge funds to buy back into the market against their own strategy. This is the big money, this is the money that drove Gamestop to massive highs, not the retail investors. 
I open to being corrected on that, but that is my understanding.


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## RedOnion (1 Feb 2021)

WolfeTone said:


> The small retail investors who 'piled in' knew exactly what they were doing.


I doubt this. The first ones knew what they were doing, and this has been months in the making. Then everyone jumped on the bandwagon, most of them blindly, and millions will lose money. Maybe small amounts individually, but the vast majority haven't a clue what they're doing, and don't realise they're gambling.
I think I read a note that over 50% of all Robinhood clients had purchased shares in GME.  Find me 6.5m people who know what they're doing, and not just following.


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## WolfeTone (1 Feb 2021)

RedOnion said:


> Then everyone jumped on the bandwagon, most of them blindly, and millions will lose money. Maybe small amounts individually



Yep, that is my sentiment, mostly small individual amounts that is why I dont subscribe to "there will be tears" theory.


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## joe sod (2 Feb 2021)

And like all gambles the people who have made money on the gamestop bet on are looking at the next thing rather than just walking away. They probably lose it all again on the next bet that doesn't go their way. For some reason they are now trying to do the same with SLV etf


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## EmmDee (2 Feb 2021)

WolfeTone said:


> Yeh, in this instance 'naked short-selling'. My understanding is that such a practice is illegal?



It's not


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## EmmDee (2 Feb 2021)

Itchy said:


> That could be a plausible explanation if it wasn't for the relationship between Robinhood, Citadel and Melvin.
> 
> If collateral requirements were the issue surely increasing margin requirements would have achieved the same result without giving such advantage to the market makers. That's what other brokers (who don't sell their order flow) did. Also RH CEO said there were no liquidity issues (though he did simultaneously raise a yard). RH's conduct stinks.



I'm not overly familiar with Robinhood's business model but it seems to me more likely that it was just run on minimum capital and hit a wall. It's most likely that taking a tech start up approach where they thought they could shave costs by not having "unnecessary" capital cost was the problem - a lack of knowledge / experience around why having excess capital is important.

I don't read too much into Citadel - though will wait to see what comes out in the wash. But there is just a credible story that Citadel is a huge financing firm as well as a broker. They have a speciality in distressed loans. So one of their large customers has an urgent cash flow requriement and they jump in at, I'm pretty sure, good rates. I'm not surprised. You see this happen. This is what Citadel Partners does.

And I don't buy that Citadel pressured Robinhood because they invested in Melvin. Again, they are distressed specialists. And the damage had already been done to Melvin when they jumped in. So there was little marginal benefit in shutting down trading on Robinhood. The horse had already bolted and Melvin had been called on their positions and had closed the bulk of it.

I thought Robinhood couldn't increase margin requirements to regulate the flow. As far as I know (open to correction) these were long fully paid positions - there is no way to increase margin because there is no margin. Maybe they could have pushed their collateral cost to their customer base by charging them for holding positions. But if the basis of their contracts is "no fee" trading, did they have the scope to do this?


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## EmmDee (2 Feb 2021)

WolfeTone said:


> I may have the wrong end of the stick here, but I don't endear to this sentiment.
> The small retail investors who 'piled in' knew exactly what they were doing. It is questionable as to how much they did actually pile in. My understanding is that the biggest losers were the big-boy hedge funds, who also know what risks they are taking. So it's strange to hear this type of sentiment.
> Realistically retail investors could only drive the price so high. But it was enough to expose the naked shorts trades at play forcing the big hedge funds to buy back into the market against their own strategy. This is the big money, this is the money that drove Gamestop to massive highs, not the retail investors.
> I open to being corrected on that, but that is my understanding.



I think initially that was true - the initial wave pushed the price over a level which triggered significant margin calls and stops. That drove the larger orders which really moved the price.

I think the problem is that the story then drove another wave of retail. So more demand and lower supply. And there seems to be a big message of "hold" in the reddit groups. Have heard quite a lot of people buying in the $200's (including on here I think). The price closed yesterday at $225 and is $160 on early trading. There might come a point where the smaller guys who are looking at 50% losses start closing out - and then you see the price move to equilibrium which (as I've said) isn't anywhere near this level. And that's where I worry about smaller traders taking pretty significant losses

But maybe it works out for folk and nobody gets hurt too badly - which would be a good outcome


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## jpd (2 Feb 2021)

Without any proof, my take is that a lot of savvy investors got in last summer and autumn, patiently stoked the fire until it was raging, got out and are now sitting on the sidelines watching the flames die away - they may even now be shorting the stock and waiting for a further profit to roll their way.


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## Colm Fagan (2 Feb 2021)

dereko1969 said:


> What alternative should the Govt have taken if it heeded the hedge funds?


I am not a banker, so I could be wrong, but could it not have intervened earlier?  There was more than a six-month gap between the hedge funds targeting the banks and the authorities acting decisively (i.e., putting taxpayers on the hook).  My recollection is that, during that six-month period Anglo Irish flogged high interest deposits onshore and offshore at a rate of knots.  Surely taxpayers would at least have been saved having to bail out those depositors if government had acted in March 2008 rather than at the end of September?


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## flyingfolly (2 Feb 2021)

Looks like people are getting burned today  

GameStop trading at $110 now with lots of brokers not allowing purchases. Bit of a sinking ship


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## Seagull (2 Feb 2021)

cremeegg said:


> Agreed, but short selling and telling everyone that you have done so, 'cause you are a smart investor has the effect (usually) of driving the price down. Not just betting on the race but effecting the outcome.


Once you reach a large enough short position, it's a regulatory requirement to declare it. That's why the position was known about initially, and what allowed punters to push up the price, knowing that the hedge funds would have to buy the stock to make good their sale.


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## WolfeTone (2 Feb 2021)

EmmDee said:


> It's not



I take your word for it. Certainly the apparent lack of any urgency by authorities to arrest anyone would seem to support that. 
However, from what I understand of the practice (admittedly I'm gauging it from public news outlets) of selling shares that don't actually exist, it sounds like a practice that should be illegal.


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## tecate (2 Feb 2021)

WolfeTone said:


> I take your word for it.


Are we sure about this?  There's no doubt but that it's going on all the time with little sanction against it but my understanding is that it's still illegal. JP Morgan was fined for naked shorting silver back in the day. Of course, they just paid cents on the dollar - which is validation for them and the likes of Melvin Capital to carry on with this practice.



WolfeTone said:


> Certainly the apparent lack of any urgency by authorities to arrest anyone would seem to support that.


Hmm...that's one interpretation. Another could be that everyone's happy with the status quo even if its morally reprehensible and against the greater good.



WolfeTone said:


> However, from what I understand of the practice (admittedly I'm gauging it from public news outlets) of selling shares that don't actually exist, it sounds like a practice that should be illegal.


My understanding is that shorting shares that don't exist can simply destroy companies. There's a solution. Put equities on a blockchain and nobody can do it.


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## lbray92 (2 Feb 2021)

joe sod said:


> And like all gambles the people who have made money on the gamestop bet on are looking at the next thing rather than just walking away. They probably lose it all again on the next bet that doesn't go their way. For some reason they are now trying to do the same with SLV etf



You should check /r/wallstreetbets. Nobody is trying to do anything with SLV - that's a lie that has been spun by media. 

I think a lot of people here are missing the point of this whole thing. The users of /r/wallstreetbets know exactly what they're doing - they're not stupid. They simply don't care about the losses. If you had ever visited /r/wallstreetbets before this whole GME thing you would know the kind of mentality they have there. It is a meme subreddit that was mostly full of "loss porn".

It has become more about fucking over the hedge funds than actually making money and people are well aware the hedge funds will use any method they can to escape this and that there is a very real chance of losing money.

I am sure there are people that have cashed out and are keeping quiet but I do believe the "hold" position of most people on /r/wallstreetbets is genuine. It is a culture that has been exhibited there for a lot longer than GME has been around. Take a look back through the archive and see some of the top posts of all time on that sub and you will get a feel for the mentality over there.


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## EmmDee (2 Feb 2021)

tecate said:


> Are we sure about this?  There's no doubt but that it's going on all the time with little sanction against it but my understanding is that it's still illegal. JP Morgan was fined for naked shorting silver back in the day. Of course, they just paid cents on the dollar - which is validation for them and the likes of Melvin Capital to carry on with this practice.
> 
> 
> Hmm...that's one interpretation. Another could be that everyone's happy with the status quo even if its morally reprehensible and against the greater good.
> ...



Selling shares with no ability to settle the trade is illegal. That's not what anybody here was doing. The hedge funds had borrowed the shares - the trades had settled. That's what caused the short squeeze - the fund has to post increasing amounts of collateral back to the lenders until at some point they were forced to close the position because they had run out (or hit their internal max limit).

But they can also short the stocks via derivatives and I have no doubt they were doing that. Which explains the overall market short being greater than shares issued. But again, as the mark to market on the derivatives goes negative they would have had to post collateral. Though I would expect the derivative writers to hedge out by being long the shares - though they might have had off-balance sheet alternatives.

Blockchain on securities is actively being worked on. It is part of the drive to shorten settlement cycles (I'm not sure - it may have already been tested). Wouldn't have changed what happened here because nobody was selling and not settling


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## tecate (2 Feb 2021)

@EmmDee : So when a 138% short interest in GameStop is mentioned, are you saying that 38% of short equity interest was conjured up through derivative products which are perfectly legal - providing a loophole to get around the theoretical illegality of naked shorting?

If so, surely there should be a move against that form of derivative trading?


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## EmmDee (2 Feb 2021)

tecate said:


> @EmmDee : So when a 138% short interest in GameStop is mentioned, are you saying that 38% of short equity interest was conjured up through derivative products which are perfectly legal - providing a loophole to get around the theoretical illegality of naked shorting?
> 
> If so, surely there should be a move against that form of derivative trading?



It seems it was not unlike the mortgage bond markets in 08 where the "open interest" was significantly more than the actual value of mortgages.

It's hard to move against a trade between two people. To touch on your area of interest, there have been threads on here guessing the value of Bitcoin at end of year. If, in theory, there was money on those predictions, you have an open interest on the price of Bitcoin that is not related to the amount of Bitcoin in circulation. How do you move against that.

It happens quite a lot btw - the value of Wheat futures or Oil futures often exceed the actual market. Often because they are being used as a proxy for some other cost that people want to hedge. I only mention to point out how difficult regulation becomes - you get into all sorts of weeds

Didn't think you'd be type looking for increased regulatory oversight btw


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## tecate (2 Feb 2021)

Thanks for the explanation.





EmmDee said:


> Didn't think you'd be type looking for increased regulatory oversight btw


  If we're talking about centralised entities and centralised markets, then of course it has its place  albeit it can be progressive or otherwise. More a case of the right sort of oversight rather than more of it.


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## jpd (2 Feb 2021)

I borrow your shares in Gamestop for a week for a small fee and then sell them, hoping to buy them back cheaper next week when I have to give them back to you. I have shorted your shares once

The person I sold them too, does the same so now your shares have been sold and shorted twice. 
If enough people do this, it is possible to have more shares sold short than there are shares in the company.

Obviously, this is a very risky business, as everyone *will have to* buy them back next week to repay them forcing the price up.

The hedge funds were caught with their trousers around their ankles


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## joe sod (2 Feb 2021)

@jpd 
so when i borrow a share to sell short I immediately sell it to another investor, but who owns the share during that period ?, the original investor did not participate in the transaction yet his share has been sold to another investor without his knowledge . Therefore two investors believe they own a share when in fact only one share is in existence ? I struggle to understand why this would cause a share to fall though, there is indeed a "shortage " of shares alot more transactions but surely that "shortage" should be pushing up the price not depressing it?


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## EmmDee (2 Feb 2021)

joe sod said:


> @jpd
> so when i borrow a share to sell short I immediately sell it to another investor, but who owns the share during that period ?, the original investor did not participate in the transaction yet his share has been sold to another investor without his knowledge . Therefore two investors believe they own a share when in fact only one share is in existence ? I struggle to understand why this would cause a share to fall though, there is indeed a "shortage " of shares alot more transactions but surely that "shortage" should be pushing up the price not depressing it?



In a stock loan, the lender retains economic ownership (rights and dividends for example) but borrower takes legal ownership... So the borrower has to pay the lender any dividends during the period. The lender will account for the shares as owned but lent out (in return they get collateral which they account for as collateral but not owned in an accounting sense)

If the borrower sells the shares, the buyer owns the shares (legally and economically). There is still only one legal owner. If a dividend is paid the new owner receives it and keeps it. The borrower has to pay the lender the equivalent out of their pocket.


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## peemac (2 Feb 2021)

Seems the biggest winners were the larger and long term holders of gme stock - reports that many cashed out their positions. 

And hedge fund short sellers probably jumped back in at the height and most likely made a killing.


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## Risk Reversal (2 Feb 2021)

EmmDee said:


> And I don't buy that Citadel pressured Robinhood because they invested in Melvin. Again, they are distressed specialists. And the damage had already been done to Melvin when they jumped in. So there was little marginal benefit in shutting down trading on Robinhood. The horse had already bolted and Melvin had been called on their positions and had closed the bulk of it.



There are significant conflicts of interest in play between Citadel and Robinhood. Robinhood generate 35% of their total revenue directly from Citadel. 

Having bailed Melvin out they would have been very keen to avoid Melvin also having to liquidate their long positions to cover margin calls which would have significantly impacted Citadels other long positions. 

Who knows what indirect of direct hints were given to Robinhood. Let's hope all is revealed...


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## 24601 (3 Feb 2021)

Paul Sommerville was on The Stand with Eamon Dunphy about this yesterday and it's well worth a listen. He gives a very good insight on the importance of shorting in maintaining an efficient market. 

https://thestandwitheamondunphy.com/episode/1012/


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## lledlledlled (4 Feb 2021)

24601 said:


> Paul Sommerville was on The Stand with Eamon Dunphy about this yesterday and it's well worth a listen. He gives a very good insight on the importance of shorting in maintaining an efficient market.
> 
> https://thestandwitheamondunphy.com/episode/1012/



Paul was very active on twitter throughout the GME saga. Very much on the side of the hedge funds as opposed to the Reddit gang. 
In fact, he blocked people on twitter for even mildly disagreeing with his points. 

On his radio segments over the years, he tends to lean towards the Bear view on markets. Is it possible he's involved in the Shorting game himself, and wasn't a bit pleased with the Redditers jacking up the price of his positions?


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## jpd (4 Feb 2021)

Every commentator I've hear or read has a position on this - so as always caveat emptor


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## 24601 (8 Feb 2021)

What goes up must come down etc. etc.


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## lledlledlled (8 Feb 2021)

24601 said:


> What goes up must come down etc. etc.
> 
> View attachment 5321



In the case of Gamestop, it would appear so. Although plenty said the same about a certain crypto currency and a certain electric car maker, and they're not showing much sign of falling.


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## 24601 (8 Feb 2021)

lledlledlled said:


> In the case of Gamestop, it would appear so. Although plenty said the same about a certain crypto currency and a certain electric car maker, and they're not showing much sign of falling.



They're not showing much sign of falling....yet.


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## jokerini (15 Feb 2021)

Gamestop is just a declining bricks and mortar retailer. It's more likely to hit $4 than $400 in the next 12 months.


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## lledlledlled (15 Feb 2021)

jokerini said:


> Gamestop is just a declining bricks and mortar retailer. It's more likely to hit $4 than $400 in the next 12 months.


Probably why the Hedge Funds shorted it in the first place.


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## LoveTrees (25 Feb 2021)

GameStop's Frankfurt shares nearly triple in catch-up trade to Wall Street
					

Shares surge 180% in pre-market trading after US stock more than doubles




					www.irishtimes.com
				




...again???


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## WolfeTone (9 Mar 2021)

Gamestop shares surging again.


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