How Reddit users took on Wall Street over GameStop stocks

28 Jan 2021

A group of users of Reddit, the social media platform, turned the tables on Wall Street on Wednesday, pushing up the prices of previously unloved stocks in firms such as aging U.S. video games high street chain GameStop.

The Reddit community r/wallstreetbees, which has 2.8 million members, was urging members to keep pushing the stocks higher with the aim of putting the squeeze on U.S. investment funds Melvin Capital and Citron Research, which had placed bets for the money-losing stock to continue to fall.

It seemed to have worked. Despite no material change in the firm’s unstable position, GameStop shares climbed from just $18 two weeks ago to a high of $380 on Wednesday. 

Citron Research acknowledged on Wednesday in a YouTube video that it unwound the majority of its bets against GameStop's share price, taking “a loss, 100%” to do so. Melvin Capital is also pulling its resources from short positions on GameStop shares.

But come Thursday morning, the saga has taken a surprising twist, with shares down 20% in after-hours trade after the Reddit investor forum closed to the public temporarily.

Reddit moderators closed the wallstreetbets forum to make adjustments after it was blocked on chat app Discord due to obscene content.

“We blocked all bad words with a bot, which should be enough, but apparently if someone can say a bad word with weird unicode icelandic characters and someone can screenshot it you don't get to hang out with your friends anymore,” read a message from the group’s moderators after wallstreetbets reopened.

Discord said its decision to close the forum had nothing to do with its effect on share prices.

“The trading frenzy has spread globally and has led to a White House alert,” reported the BBC.

On Wednesday evening, deVere CEO Nigel Green warned: “I would urge investors to exercise the utmost caution before joining social media-led stock frenzies of this nature.  The valuations can be expected to be extremely wild - in both directions – and there’s a legitimate risk that investors could get burned.”

He continued: “This is being pitched as a battle-play of Wall Street or The Square Mile versus The Little Guy.  However, this is not typically the way reasoned, savvy investors should strategise to create and build their portfolios in order to reach their financial goals.

“This is a dangerous game to play for retail investors.”