Updated: January 28, 2021 11:19 PM
Created: January 28, 2021 10:40 PM
ROCHESTER, N.Y. (WHEC) — It's been a wild week on Wall Street. Investors are purposely driving up the price of GameStop stocks, causing hedge fund managers to lose billions of dollars in just a few hours.
News10NBC talked to one financial expert who explained how all this works.
Investors made an untold number of millions this week with a strategy that caught even those in the financial world off guard.
For quite some time now, GameStop retail stores all across the country have been suffering financially as more people stream, or purchase their video games online.
Brighton Securities Chairman George Conboy says hedge fund managers have been using this situation to buy GameStop shares and selling them short.
"What that means in plain English, they sold the shares," Conboy said. "They didn't even own them. They borrowed shares of GameStop, sold them, and then hoped to see GameStop shares decline in price, and buy the shares back really cheap, and give them to who they borrowed them from."
Online traders then came in mostly through social news discussion website Reddit, and started buying shares of GameStop like crazy.
Edward Novogratz, CEO of Galaxy Investment Partners explained why.
"There is an anger out there if you go to Reddit chat rooms," Novogratz said. "There is an anger, almost let's tear down the system."
Conboy says just two weeks ago, GameStop was at $20 per share. Thursday it was trading close to $500 before closing at around $200 per share.
"Every dollar up that GameStop went the hedge fund loss money," Conboy said.
Investors also bought up a lot of AMC Theater, Bed Bath and Beyond and Nokia shares.
"Even Kodak stock believe it or not a few days ago was $8, or $9 a share. Got up to 14," Conboy said.
"It's risky because we are doing options investing, but people made good arguments that people said, 'I think that it's going to go up,'" Justin Speak, and investor said.
"The hedge fund finally couldn't take the pain of losing, closed out their position meaning they got out of their position, lost about I estimate $3B," Conboy added.
As far as driving up the price of a stock, is it even legal? Conboy says yes.
"There's nothing illegal about going online, and telling people you think they should buy this stock because you're buying it," Conboy said. "It's no different than walking into work saying, 'Hey I bought some shares last night. This is a great company you should buy some.'"
Some online trading companies, such as Robinhood, will begin limiting the number of stocks you can purchase from companies that were talked about on the subreddit. It's a move that's angering a lot investors in this movement, but companies have the right to protect themselves.
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