Recently the GME stock moved in an extreme way, though there is more to it, these steps appear to have happened:
- A hedge fund had a large short position
- Many retail investors bought the stock, forcing the price up
- The hedge fund closed its short position, the expected loss is over 5 billion USD
This is not the end of the story, but I want to understand what happened upto and including this point. Or if it is impossible to know, what likely happens/typically happens in such situations.
- If the hedge fund lost billions, they presumably provided cash or cash equivalents to 'someone' in the order of 5 billion USD
- Suppose there are 10k retail investors that sold stock (at that time many appeared to even be holding), then either they would have made about 500k average, or most of the cashflow was not in their direction.
In short: Many people now have stocks which they will later be able to sell at some price to generate cashflow in their direction, but if billions of cash have already been drained from the hedge funds, where did these go?!
Again, the actual answer for GME would be great, but a likely answer based on industry experience or past occasions is fine as well.
EDIT for clarification
I understand how the money moves (the party that was short brought shares), my question is where the money went. Did they really just have to go through the market, or perhaps just bought all the shares from one party that had a lot.