So what is happening with Gamestop now ?

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dmillos said:

This is insane! I came straight to the forum as soon as I saw this. How can the stock market be so vulnerable? How many people have to be working together to make a stock do something like this? This is extreme gambling for me. This stock right now seems like it could either go to $1000 or to $1 in a matter of hours.

It's a short squeeze.

It works basically like this:

An investor shorts a stock, meaning he bets the value of the shares of a company will drop. To do so, he sells shares, but only buys them at a later date and pockets the difference if the price went down.

However, what can happen is that the price went up instead of down. In that case, the investor might be forced to buy the stocks at a higher price, making some losses in turn.

Now imagine a company like Gamestop, which had been sliding in stock value for 6 years straight. As a result, there are tons of investors here who short Gamestop stocks. The problem is that when somebody buys Gamestop stock, their price goes up. In other words, every investor who shorted the stock and now wanted to get out of that position is driving the price higher for all the other investors in that position. As a result, they are now trying all together to get out of their shorting position, resulting in the exploding price increase of the shares.

Now you might wonder why they couldn't just wait until the price goes down again. Well, the problem with a short position is that they are generally timed, meaning you need to give the share you're selling if you're shorting within a given timeframe. This is why the investors can't just sit out the storm and wait until it goes down again and try to buy before it gets even more expensive.

And yes, shorting is nothing else but gambling at an absurd level. Investing in the stock market is gambling either way, but shorting is pretty much the worst offender in that domain.