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In general I understand the mechanism of the Gamestop event (short squeeze), but I am a bit confused as to why it happened only when Reddit investors got involved.

I would presume that anybody with enough money (and there are plenty of rich people on Wall Street) could have done the same. Or there was something unique about this that makes it impossible for "regular" players to do what Reddit investors did?

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    There have been arguments that this constitutes illegal stock manipulation. Rather it does or doesn't is...complicated, but there is at least some risk here. If a single large firm tried the same thing then if it was determined that this was an illegal manipulation of stocks they would face sever legal penalties. By contrasts redditers are small-fry investors who are not, individually, important enough to go after. Thus they can afford to 'risk' actions that could be deemed potentially illegal with little concern of legal penalties. A large firm may not be as comfortable with that risk. – dsollen Feb 1 at 18:33
  • In addition ultimately this technique is harmful to the economy as a whole, already groups that usually really heavily on shorting stocks have slowed shorting and even started rebuying stocks early in fear of redditers pumping up some other stock. This results in further risk and a general chilling effect on the economy as a whole. A large investment firm that is dependent on the stock market for their wealth may also be more apprehensive of choosing a short term profit method that would risk a long term weakening of the market they depend on. Redditers have less to fear from this. – dsollen Feb 1 at 18:37
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    The GME short squeeze had no effect on the economy whatsoever. It dramatically affected the players but that was money changing hands. If groups that rely heavily on shorting stocks have slowed shorting and even started rebuying stocks early in fear of redditers pumping up some other stock, it may boost the market but it also will have no effect on the economy. – Bob Baerker Feb 12 at 15:09
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Short squeezes and gamma squeezes (the option counterpart) are not unprecedented. They are however quite risky.

An example of this happening before is the Volkswagen Short Squeeze.

JP Morgan squeezed the aluminium market back around 2015.

Here's Goldman squeezing aluminium back in 2011.

To some extent, the big players are defined by always looking for opportunities to do this. What they don't do, because it's effectively illegal, is go round publicising their holdings and trying to rope in others to the squeeze.

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    Can you perhaps elaborate on what exactly makes this illegal on this question? – Philipp Jan 29 at 12:56
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    Big players in the U.S. markets don't publicize their holdings unless they exceed a position threshold (SEC regulations). But it's not illegal for them to do so. What is illegal is conspiring with others to drive share price down. – Bob Baerker Jan 29 at 14:28
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    While Bob makes a valid point, it's not always easy to differentiate, "I'm offering advice because I like offering good advice," from "I'm sharing a great/awful/interesting trade I just made" and "I'm offering advice because I want to manipulate the market." – Brian Jan 29 at 19:27
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    @Bob Baerker: But in this case we have people conspiring with others to drive the share price UP. – jamesqf Jan 30 at 18:22
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    @jamesqf - Suppose a Goldman Sachs analyst comes out with a stock recommendation and 10,000 account holders receive it. Based on your proposition, how is that not people conspiring with others to drive the share price UP? Redditors were openly discussing their ideas and trades. They put their money where their mouth is and at risk. They did nothing illegal. The hedge funds were awfully stupid if they weren't monitoring Reddit and other stock discussion sites regarding their holdings. Even stupider for taking such large short positions. If you see it otherwise, we agree to disagree. – Bob Baerker Jan 30 at 18:53
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When the music stops, whichever Redditors are left holding GameStop shares at that point will lose their shirts, because the shares are really only worth a few dollars. No serious fund is going to take that risk.

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    That's obvious. But what matters is that while the stock is high, the hedge funds who shorted these stocks are forced to buy them at these greatly inflated prices from those who are willing to sell right now. Couldn't another hedge fund also pull this off? As the answer by @pjc50 says, the answer is yes. – Philipp Jan 29 at 12:54
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    @Philipp Before a hedge fund can sell shares at greatly inflated prices, it first has to buy them at very slightly less inflated prices, and then wait for the price to go up further. If the music stops between purchase and sale, then they’ve made an enormous loss. – Mike Scott Jan 29 at 13:51
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    @user253751: which boils down to the questions: (a) could MarvinCorp work out that $400-ish was the right place to sell, i.e. the place at which MelvinCap breaks? (b) would it be legal for a single entity to acquire that much stock for the purposes of short-term price manipulation? – Steve Jessop Jan 29 at 19:06
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    @SteveJessop well, you know it'll have to buy them at some price at some time, and if you have deep pockets, that price can be as high as you can afford to lock them out of. I suppose there will be reporting requirements when you get to a large percentage, which retail investors don't have because none of them individually meet the percentage. – user253751 Jan 30 at 0:05
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    Also, MelvinCap might eventually fail a margin call and declare insolvency, so it's not necessarily true that they have to buy them at some price at some time. If that happens, MelvinCap's broker is a creditor in the insolvency, but MarvinCorp isn't because MarvinCorp never lent shares to MelvinCap. That isn't what the real MelvinCap did on this occasion, of course, but shorters in general do not have unlimited money to meet their liabilities. – Steve Jessop Jan 30 at 12:24
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The people doing it care more about making an example of the short sellers, than they care about not each losing a little money.

A very different motivation than a fund manager.

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Of course they could have. In fact, they are probably already participating, and the price movement is more due to the funds than to individual investors on Reddit. Just check out GME's statistics.

As of time of writing:

enter image description here

95% institutional ownership. Unless the fund managers themselves are on Reddit, the Redditors account for no more than 5% of GME's outstanding shares, and GME's price movements are still largely due to the funds.

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