Jon Stewart joined Twitter on Thursday, and used his first post to praise Reddit investors for taking on Wall Street and causing GameStop’s shares to skyrocket.
The Reddit group called WallStreetBets that boasts some 4.7 million members has been an online rallying spot for those urging people to buy and hold GameStop shares, punishing short sellers by sending prices soaring.
It was then that Robinhood and Interactive Brokers restricted trading in GameStop stocks, which dealt a blow to the Reddit investors.
In response to the controversy, the former Daily Show host, who is a verified Twitter user under the name @Jon_Actual, wrote in his first tweet: ‘This is bulls**t. The Redditors aren’t cheating, they’re joining a party Wall Street insiders have been enjoying for years.
Jon Stewart, who just recently joined Twitter, has praised a group of small investors on Reddit for taking on Wall Street by causing GameStop’s shares to skyrocket over the past few days
In response to the controversy, the former Daily Show host, who is a verified Twitter user under the name @Jon_Actual, wrote in his first tweet: ‘This is bulls**t. The Redditors aren’t cheating, they’re joining a party Wall Street insiders have been enjoying for years’
‘Don’t shut them down…maybe sue them for copyright infringement instead!! We’ve learned nothing from 2008. Love, StewBeef.’
The Late Show host Stephen Colbert responded to Stewart with: ‘Well, one thing changed since 2008- a friend of mine joined Twitter.’
Just hours later, Stewart followed up his first tweet with: ‘Thanks for the warm welcome! I promise to only use this app in a sporadic and ineffective manner.’
Stewart’s tweet came the same day as Robinhood and Interactive Brokers restricted trading in GameStop and other stocks that had soared this week.
The restrictions from Robinhood and Interactive Brokers caused GameStop’s shares to plummet on Thursday and prompted policymakers to voice their concern.
Lawmakers from both main parties in Congress, including Democrat Alexandria Ocasio-Cortez and Republican Ted Cruz, criticized the decision by Robinhood to restrict retail trading. Robinhood did not respond to requests for comment.
Stewart’s tweet came the same day as Robinhood and Interactive Brokers restricted trading in GameStop stocks. That dealt a blow to the army of retail investors taking on Wall Street professionals and prompted several lawmakers to voice their concern
US Senator Sherrod Brown, incoming Democratic chairman of the Senate Banking and Housing Committee, said he will hold a hearing on the current state of the stock market.
‘People on Wall Street only care about the rules when they’re the ones getting hurt,’ Brown said in a statement.
Retail investors and celebrities also denounced the restrictions and participants in online forums seethed, accusing the trading platforms of seeking to protect Wall Street’s interests at the expense of smaller investors.
And after the backlash, the GameStop’s shares rebounded in after hours trading when Robinhood and Interactive Brokers said they planned to lift the restrictions on Friday.
Coordinating on forums such as Reddit’s Wallstreetbets, the small investors forced hedge funds to unwind short positions that had bet on the decline of shares in companies such as GameStop and American Airlines. That activity resulted in a short squeeze that sent the shares soaring.
GameStop, the video game retailer whose 1,700 per cent rally has been at the heart of the slugfest in the past week, initially rallied to more than $480 a share on Thursday, Refinitiv data showed. It closed down around 44 per cent at $193.60
How does ‘shorting’ a stock actually work?
Stocks typically benefit investors if the price goes up – they buy stock, the price increases if the company does well, then they sell it for a profit.
But there is a way to reverse that process. Known as ‘shorting’, it involves placing a bet against a company that means a trader makes money when the value goes down.
To do this, a trader borrows stock off a broker, usually for a fee, which they immediately sell – but with a clause saying that they have to buy back that stock by a certain date and return it to the broker.
If the value of the stock goes down, then the trader buys it back for less than the sale price, returning the stock to the broker along with the fee and keeping the rest of the money for themselves.
But, if the stock price rises, they will be forced to buy for more than the sale price, making a loss in the process.
While this sometimes happens by accident, other traders can deliberately boost the price in a process known as a ‘short squeeze’ – which is what Reddit did.
This benefits the ‘squeezers’ because they know that at some point, the short-sellers will be legally obliged to buy back their borrowed stocks, driving the price up further.
It also inflicts heavy losses on the short-sellers, since the amount they lose is tied to the amount the stock rises – they are effectively ‘punished’ for betting against the company, which is what some Redditors appear to be interested in.
This post was first published on DailyMail.