The Potential Domino Effect of GameStop

The GameStop saga stopped the stock market in the tracks earlier this year, with wealthy hedge funds losing millions of pounds. The move was orchestrated on the subreddit thread, with vast numbers of average investors joining forces to push-up the proportion price.

No it's possible to deny the effect was tumultuous. However, what isn’t so clear is exactly what will happen in the longer term. The legalities from the subreddit crowd are still under consideration, yet there’s no guarantee that it won’t happen again.

While developing a hike in price as crucial as GameStop seems unlikely, it comes with an appetite for a repeat. There are many retail clients who want to snap up shares that hedge money is shorting inside a bid to create another stock market tsunami. So could there be a domino effect following on from GameStop?

The Legal Position

The impact on the stock market and share prices might have been immediate, however the legal arguments have been a significantly slower burn. Regulators in america and the UK face a very thorny issue attempting to ascertain whether the subreddit thread investors did anything wrong.

There are stringent rules affecting stock and Forex exchange in the UK, just like in the US. In particular, market manipulation is against the law. There’s no exact meaning of what falls within the boundaries of the. However, if you buy shares for the sole purpose of pushing in the price for reasons apart from personal gain, that could be argued to be market manipulation. Buying shares with the hope the value will rise, and you’ll profit is fine – but that’s not exactly what was happening with GameStop.

There's no clear indicator that what occurred is illegal, but it certainly falls within a shady area.

A large number of the investors who joined in, certainly in the later stages, were just jumping on a trend that may earn them money. That’s incorrect for individuals who kicked things off, and that’s high might be problems. However, even then, it’s unclear because “pumping” a regular just for fun, provided that you’re not releasing misleading information, doesn’t technically fall foul from the law. There’s a powerful argument the subreddit thread didn’t possess the capacity by themselves to change the market substantially. In addition, they didn’t release misleading information to induce others to purchase. Therefore, the SEC and FCA may well choose that although dubious, there were no illegal manoeuvres.

Appetite for additional?

There’s absolutely nothing to stop day traders from doing exactly the same to other stocks even without the any pursuit in the regulators. There've recently been some rumblings, such as American Airlines, who saw their stock rise by 30% right away after it was mentioned on a subreddit.

There are some possible contenders, but the only way investors will see a repeat of GameStop is that if all of them decide to go after the same stock at the same time. Some hedge funds have said they'll no more short, but that’s not the case for those. You may still find some firms that specialise in shorting stock, and subreddit users appear to be going to make sure they are pay.

Nothing is clear-cut at this time, but some of the stocks being circulated for a possible pump include Palantir, Nokia, Blackberry and AMC. The second may be the hot favourite for any future move, so if you’re interested in after this story, be sure to keep a close eye on volume sales with this stock.