GameStop stock price: 5 things you need to know after shares surge

GAMESTOP shares have soared this year after an army of amateur traders targeted them, causing professional hedge funds to lose billions of dollars.

But for the amateur traders, the surge has seen them make some serious cash.

GameStop is a struggling US gaming retailer that has been caught up in a "short squeeze" — GameStop is a struggling US gaming retailer that has been caught up in a “short squeeze” Credit: EPA

If you’re thinking of investing, we take you through the key information you need to know before parting with your money – buying stocks and shares is a risky businesses.

Remember, investing is not a guaranteed way to make money. Your cash can go down as well as up. Make sure you know the risks and can afford to lose the money.

1. GameStop was “failing” before the shares surge

GameStop is a US computer games retailer that has been struggling to compete with the shift to online shopping.

The 37-year-old chain has thousands of shops across America but recently announced plans to axe 450 of them this year.

It has also been hit hard by the pandemic and in general, it’s not expected to return to its pre-Covid sales.

2. Stocks soared by 359% in three days

In the past three days, shares in the company have soared by a staggering 359%, from $96.80 to $347.50, reports the Guardian.

In fact, shares have risen by an incredible 10,692% since April 2020 when they were priced at just $3.25.

It means investors who bought at April’s low price and sold them today have made a profit of $344.25 per share.

3. Reddit investors are behind the surge

The retailer has been caught up in a David and Goliath stocks and shares saga, between amateur investors and Wall Street hedge funds.

Similar to many failing companies, the business has become the subject of what’s known as “short selling”.

In simple terms, this is when professional investors borrow shares of stock to sell, and then buy them back at a lower price.

Essentially, they are betting that the stocks will drop in value so they can pocket the profit when they hand them back to the company they borrowed them from.

They rely on the company failing, making it a risky way of raising cash – any positive news could see shares rise and cause them to make a loss.

To prove a point, the Reddit community – the Davids – decided to take on the hedge fund – the Goliath – that was short selling by buying up GameStop stock as quickly as possible, driving up share prices.

But the hedge fund still needed to return the borrowed stock so ended up buying back the shares at a hugely inflated price, costing them billions.

This made the price soar even more. When this happens, it’s called a “short squeeze”.

The losses caused the hedge fund to go bust, causing other funds to call on regulators to take action, claiming the public shouldn’t be allowed to control the market like this.

“This phenomenon is indicative of the youth investment mindset,” said investment expert and CEO of BlackBook Investments, Mohit Tater.

“Young investors are among the most innovative, finding new ways to capitalise on the systems that confine them.

“But their dedication to sustainability and social justice is given equal weight to their exploitation of the neoliberal capitalist model.

“We haven’t seen the end of Reddit vs Wall St and we’ll be seeing this phenomenon develop and shape the market over the coming months.”

4. Some trading platforms have stopped taking new customers

The surge in amateur investors snapping up GameStop stock in recent days has left some trading brokers struggling to keep up.

In fact, a tweet from billionaire Tesla boss, Elon Musk, yesterday inspired even more people to invest.

Posting a link to the GameStop Reddit thread, he wrote “Gamestonk!!”.

Some trading brokers have been forced to stop taking on new customers while they deal with the backlog.

Investment platform Trading 212 announced this morning: “Due to unprecedented demand, we have temporarily stopped onboarding new clients.

“Once we process the existing queue, we will be open for new registrations.”

5. Investing is risky and you could lose it all

Investing is essentially gambling and there are no guarantees that you will see what you pay in go up.

In fact, there’s a significant chance that share prices will fall, meaning that you’ll make a loss.

GameStop shares have already started to go down in value despite the hype.

In the early hours of this morning, shares plummeted by 20% within hours of the investor forum on Reddit closed temporarily, reports the BBC.

Peter Hanks, analyst at DailyFX.com, reckons buying GameStop stock now isn’t wise as their value has already appeared to peak.

He explained: “The behavior of GME shares has passed the point of traditional “investment analysis” into full blown mania so investing in GameStop at this stage might be more akin to sports gambling, rather than making an educated wager on the company’s financials or revenue expectations.”

YouTuber The Plain bagel explains how amateur traders make MILLIONS from GameStop as hedge funds lost money shorting stock

This post first appeared on thesun.co.uk