The case of GameStop (GME Stocks): Can be repeated?

The history of the GameStop video game company is more or less, known to many of us. The share price of the company skyrocketed thanks to the massive purchases of the share by retail traders. Retail traders through communication in social media such as Reddit coordinated and acted as a powerful global investment community.

In fact, they created accumulated demand and, through online trading platforms such as Robinhood, created a buying frenzy and huge rise in the share price of the company. The aim was to force hedge funds that had taken short positions in the GameStop share, to liquidate their positions to cover the losses; closing a short position on a contract is done by opening a long position, thus, the hedge funds who initially bet on the fall of the share price were found to support its rise. Eventually, the retail traders have achieved their goal, and even created turmoil on the stock exchange.

There are many critical questions that arise after the rise of the stock which was found in levels of capitalization that the size of the company cannot justify. Two of them are. What are the practical but also the deepest reasons why this phenomenon happened? If this question is answered it will help us answer the second question that is. Can this phenomenon be repeated?

Indeed, the company was found at levels of capitalization that, its financial and business size, and any expected growth of the company, cannot justify these levels. But as we have seen, in practice, according to the pattern had followed by the retail traders, after a coordinated over-demand was created, there was a compulsion of hedge funds to buy contracts, which in turn created new demand for the stock and an excessive rise in its prices.

However, the deeper reasons that led to this practice need to be clarified. To clarify these reasons, a distinction must be made between the incentives of retail traders and the tools available to retail traders. Both, incentives of retail traders and the tools they have at their disposal are of utmost importance because they will show us if the phenomenon of GameStop may be repeated.

The incentives of retail traders are many. It was said that the spark that activated the process of coordinating the action of retail traders was the restoration of ethics. In fact, the continuous games of hedge funds which make excessive short selling of shares, regarding companies that are in difficulty in order to speculate against them, triggered the retail trader's sentiment in order to oppose them.

Maybe their motivation was to prove that they could be the new "Robin Hoods" or the ones who win David's battle against Goliath. They may want to state that they now have the power to challenge the existing system. Or to show that there can be a "democratization" of financial activities, and a new movement that will create a "social and economic phenomenon."

All these views and more others could show retail traders' incentives. The list of incentives can be, non-exhaustive. In fact, the list has always been non-exhaustive and retail traders always are motivated by something when they act. The difference is that now it is proved that they have other kinds of tools to serve their incentives. Although social networking seems to be the new kind of tool they use, the reality is that social media is just the tip of the iceberg.

What is really happening is that because of the conditions created by the 4 th Industrial Revolution, everyone now has the ability not only to communicate but also to interact with each other. In addition, by combining their incentives, coordination conditions are created so that everyone ultimately serves common incentives. When this happens the power that the retail traders gain becomes enormous, and the results are impressive.

Thus, the answer to the question of whether the phenomenon of GameStop can be repeated is that yes, such kinds of the phenomenon will be repeated, whenever retail traders will coordinate their actions having the common ground to satisfy their incentives. And although the list of incentives, as we have seen, seems inexhaustible, in the end, retail traders tend to form a common ground of incentives based on three principles.

What they seek as incentives, in order to coordinate is to believe that they serve:

1. the overall improvement of market conditions.

2. their individual benefit.

3. the general good.

Whenever they believe that they serve the above three principles, considering that they now have in their hands the appropriate tools provided by technology, adopting the interaction and combination between them, they will again create circumstances for coordinated action.

Maybe next time retailers will work differently and to a different degree. However, what seems more than certain is that their coordinated action will give them great strength again, which will obviously lead to a great impact.