Is this fraud? Market manipulation? We don’t know yet.Robinhood and other brokers imposed temporary restrictions on GameStop trades.This fueled a further rally in the stock price.Investors betting against the stock, including prominent Wall Street firms like Melvin Capital Management, were forced to close out their short positions by buying the stock.The New York Stock Exchange halted trading in GameStop shares several times.Forum members, including lots of novice retail traders, started purchasing GameStop stock in large numbers.Subreddit forum WallStreetBets members noticed that institutional investors held huge short positions against troubled video game retailer GameStop.You definitely don’t want to get caught on the wrong side of trades at this point.Ī scheme to manipulate the price or availability of stock in order to cause a short squeeze is illegal, according to the SEC. This in turn drives the share price even higher, which can cause an even greater squeeze. The higher the price goes, the bigger the loss.Ī sharp stock price increase usually triggers a rush by short sellers to cover their positions. The difference in price is their profit. However, if the price goes up, short sellers lose money. If the price of the stock drops, short sellers can buy the stock back at a lower price and then return it to their broker. Short sellers want to profit from an expected decrease in the stock price. You typically borrow these stocks from your broker. The term “short squeeze” refers to the pressure on short sellers to cover their positions as a result of sharp price increases or difficulty in borrowing the security the sellers are short, according to the definition of the US Securities and Exchange Commission.Ī short sale is the sale of stocks you do not own.
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