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Gamestonks

There is a huge gulf between how stocks work, and how stocks are supposed to work.

The way stocks are supposed to work is that a company wants money, and so sell tiny portions of the company. At the end of the year, any money that the company made (gross profit), over costs, (net profit), that they decide to not hold in a war chest or reinvest in the company is distributed as dividends, based off how much of the company you own, i.e. stocks.

So, you look at the company, and it produced x-dividends the last couple of years, and so you decide, say, to buy it for 5x earnings. So, on the sixth year, you make 20%, which then climbs by 20% every year. (percent of initial purchase). For pretty much everyone, that would be a great deal.

Too good.

Instead, corporations work of projections, lies, damned lies, and statistics. The stock market value ends up with little to no connection to actual earnings. It's all derivatives of estimations of projections of lies.

Alright, how the fuck are you supposed to make money off of this.

Well, for one thing, YOU are not supposed to make money. THEY are.

And the way to answer the question is through arbitrage. Commodity markets always fluctuate. You have quarterly earnings reports, international currency fluctuations, speculations, short sellings, etc.

You have have one person make a typo and sell 10x what he meant to sell, and this creates a panick that upsets the market index funds, and the market index fund creates more disruptions.

This causes the market price of a stock to increase and decrease, several times over the course of a single day. This leads to day trading, where you buy and sell the same commodity in a single trading day.

Some terms:

Arbitrage: Change in the price of a good, without any change to the good itself.

Commodity: Interchangeable products. Say you buy a 1oz gold coin, and sell it, and buy another 1oz gold coin of the same type, and it would have the same price. If you do it for stocks, it doesn't matter which set of stocks you have for a company, as they are all interchangeable.

Speculation: Literally guessing. If someone thinks a stock will increase in value, they will buy up a lot of that stock. If they are a big enough of a broker, this might be enough to actually change the marker price of the commodity. Effectively creating a self-fulfilling prophecy.

Panick: If the price of the commodity drops enough, it could make investors worried, which will cause them to sell the stock. This can lead to a cascade of selling, which lowers the price of the stock further, and further, and further.

Leverage: Take debt out on a product that you then invest. So named because it acts like a lever, applying a much larger effect to the initial product. You can stand to make AND lose a lot more money. You can leverage other debt products.

Short Sale: You borrow a commodity with a specific date of return. You sell the commodity. You then buy the commodity later and return it. If the commodity's price drops in the interim, then it's cheaper to buy the commodity later, and so you make money.

Short Squeeze: With a short sale, you are required to buy the product back. If you are required to buy enough of the product back you can cause a short-term increase the market price. The opposite of a panick occurs. Short sellers see the price increasing, and so buy the commodity they shorted now, rather than waiting, when it will be at a higher price.

Now onto Gamestonks. A group of redditors wanted to stick it to the rich hedge funds.

Now, because the government inflates your money away, you CANNOT save for retirements. As your money would lose so much value in that time you might die from the stress of it. You have to invest it in the stock market.

Gamestop is a terrible video game retailer. The only reason they survived as long as they did is because they bought out the competition.

Their stock was dropping. And when a stock drops, you get a lot of short sellers. And the Redditors were ready to strike.

There was a new app on the market, called Robinhood. The obvious implication is that you get to rob the rich. It allowed the average person to play the stock market without brokerage fees. They used this to collectively buy a lot of Gamestop stock. If you have a large buying spree, this increases the price of the commodity. This caused the price to increase by around 30x in a single month.

This caused a lot of financial damage to hedge funds, who complained, because only THEY are allowed to manipulate the stock market. Who do these plebs think they are?

Oh, Robinhood?

. . .

If you don't pay for the product, you ARE the product. The software turned out to have been built by people who built High Speed Trading infrastructure. Everyone thinks High Speed Trading is bad, but it's much worse than most people could imagine. See the Addendum for details. But, the point was basic to gather information from users.

Robinhood, being the Robin Hood they are, FORCED the sale of Gamestop stock. This pushed it back onto the market, and pushed it back onto it's downward spiral, to save the hedgefunds. Or their own liquidity, which means they were trading beyond their means, and decided to NOT meet this commitment.

Addendum: High Speed Trading

Stock trading happens on exchanges. You say put in a buy or sell order for a commodity on your exchange. If there is a compatible order on the exchange, the commodities are traded.

If there is not, the exchange sends the order to other exchanges.

High speed trading has a much faster hardline between exchanges. So, they see an order on an exchange. They see it not be fulfilled. They know it will be sent to other exchanges. They send their own orders to these exchanges, faster. They reach the new exchange first.

So, let's say Able puts a $15 buy order on an exchange for X.

Hilariously, I can just use X.

Anyways.

So, Able puts $15 buy order for say, 10,000 of Galen stock on X exchange. This will buy any stocks from Galen at $15 or less.

There are is one $10 sell order on the exchange, for 5,000 Galen stock. So, they exchange it for $10.

But, there are still 5,000 units missing.

So, X exchange sends out calls to Yankee and Zulu exchange with the orders.

The $15 buy order for 5,000 Galen stock hits Yankee exchange, a split second faster than Zulu.

Bravo High Speed traders have a faster hardline between X and Yankee. So, they send their own $15 buy order for 5,000 Galen stock to Yankee exchange, which arrives before Able's does. They find a Sell Order for $12 for 5,000 units. They buy these 5,000 units and then immediately create a sell order for $15. So, when Able's order gets there, he buys 5,000 units for $15 rather than $12.

P.S. One of the best part of this is that the financial analysts quickly learned the gamestonks lingo so they could properly advise on it.

#yesteryear #gamestonks #gamestop #stocks #stock market

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