How did the GameStop stock spike on Wall Street happen?

With GameStop's stock price back down to lower levels, is the rise and fall of GameStop a sign of more chaos to come in the stock market?
7:42 | 02/12/21

Coming up in the next {{countdown}} {{countdownlbl}}

Coming up next:



Skip to this video now

Now Playing:


Related Extras
Related Videos
Video Transcript
Transcript for How did the GameStop stock spike on Wall Street happen?
The end of January every financial expert in news anchor and one record. GameStop has GameStop trading sat at a GameStop soccer game stop GameStop GameStop OK it's blowing out. Two games and media comes back down there we'll causes small video game store one of the largest single day stock exchange's history. People behind it sent a warning shocked Wall Street about the future. Plans for GameStop became the biggest story in Wall Street lukewarm on Rainier called Wall Street that's. Hundreds of users chatting about potential. A description all. Like sports and Andrea Kavanagh an. Act. And Tokyo. Everyone here it ended up being called it a lot about. Think that are going a lot of them are getting. All. You. Any Wall Street that was definitely look. Little knowledge base but the PT. Different knowledge and expect. Editors talk stocks like cheer about wins and losses. Definitely share means objects and wielding the dangers analogies and spaceship energies more and more user started to noticed. Stuck in particular could be their rocket ship unimaginable. He noticed major hedge funds for uniquely betting on games stopped crash. And risking a lot of money process. If someone believes the stock is overvalued and that in the future that stock prices going to go down they can short. Essentially that's when someone borrows a stock from the owner through broker. And goes in cells that on the marketplace and its current price then when that stock price finally drops they buy back from the market. Pocket. And the risk can syndicate that stock price goes up and whoever bar that stock it's a little way. But the either have to buy back their socks and lost pay premium week if the stock is down. GameStop is a company that was highly short and that means there were a number of people. Adding that the company's stock would crash. And the credit community discovered this they realized that it was a vulnerability that some of the most powerful hedge funds in the world were all batting. Big game stop would crack. So many investors talking stock stocks going to crash more stocks are being shorted them even available to die that's in the short squeeze let him. See if enough people from Wall Street bets and others following their lead like GameStop stock. He trying to increase upwards that in all his investors who had shorts and couldn't cover their losses. Will be forced to buy more of the same stocks and Goran. Driving the stock prices even higher skyrocketing to them. Connie man but he the people who used to buy it didn't games every. Child and the banks do that Brad. That combined with greatness in general being go vote and let's say agent but this guy but don't understand people who have so much money did any worldly events that makes I think brought about the people in. One of the biggest things we sod that led Juno mania in trading was the pandemic itself you have. So many people especially millennial and gen Z man who are in stock at home they're born. And they have time on their hands they also have a huge number of resources. In trading actually rather than others have exploded in popularity and allowing users to mine exchange stocks in seconds from the swipe at them. Nowadays. Are now under song ruairidh. You recently started here on sentence avenue east and it's what video game my officers and public meetings friends and did you say I'm everything I wanna grew out all by an idiot and his justice Oliver. There are people who have their draft kings account Obey and their Xbox over and and their Robin Hood account open and it's like looking from screen to screen toppling between all these different things it was the perfect storm. Once the media began the social media commentary exploded. Is going to be the craziest days stock market street and all you guys out there are. And the stock market and make it hedge fund managers cry who are my heroes. Yeah one focal point it started a couple of weeks ago when then than what people are thought about it and what did what you say hey this is something I want to join. Everybody pushing the market always know what bush Martin. And that's what really isn't this worse things to us this industry we're aware of it aren't you put a lot of people did you meet everybody else Hazen Stearns. Wall Street that users found themselves not just making many more it was a war hedge funds and rallying together and dark night just as well. There has been this gigantic wealth transfer from young to older generations over the last thirty years he we've now seen a financial crisis the Great Recession weary too big to fail we were all tool that we needed to save the banks of the good and everyone and there are many people. Who feel like they didn't see any of that upside benefit. So there was this feeling. Among especially among young people that they have the tools and in their hand the availability. And they found this weakness that they could exploit even companies lighten teams. I grew at its peak GameStop stock reached over 400 dollars a share which means if you thought I thousand dollars worth of GameStop stock just a few weeks earlier. You would have pushed to 200000 dollars you all the while punishing hedge funds to lose billions to cover their short. It's sort of squeeze these guys an album. So scared and we of the prices recover and that brokers pressured once a Obama and his lateral they always been a viewers here's the back it was a really risky gamble whether. Almost as fast as taking steps to the sky or the stock price came right back down there are few days later. The trip as we just don't know the end of this story. The air are the stories of the young routed investors. Whom they outlaw their student loans are bought a new house for their family or intend to buy a new house. For their family with their winnings. But the reality is you don't make money in the stock market until you cash out of your position. The mood on Wall Street bats as the person came stock dipped below hundred just days after its record peak was a mixture of optimism and despair and but regardless of who made out with a profit or loss the mania has certainly influenced how Wall Street's thinking. Wall Street has recognize that there is this new investor class a new retail and master who tends to be young. And using apps and light Robin Hood and by some estimates these young investors account for as much as 25%. Of the overall market. People realize that we can act as an egg and there's nobody looks forward to that the. Eight incidents what's. A big hedge fund a corporation does but now I think it realized that even when it comes to the stock exchange if enough people leaving the scene being able you can sit. We'll what does it mean for the full system doesn't play. The bulls stock market risk doesn't have a potential ripple effect where he would ultimately seen this level of mania in a handful of stocks impact the full stop market. In turn impacting for a went Hazen IRAs and couldn't even have a ripple effect on jobs and the broader economy. Oh.

This transcript has been automatically generated and may not be 100% accurate.

{"duration":"7:42","description":"With GameStop's stock price back down to lower levels, is the rise and fall of GameStop a sign of more chaos to come in the stock market?","mediaType":"default","section":"ABCNews/Business","id":"75860206","title":"How did the GameStop stock spike on Wall Street happen?","url":"/Business/video/gamestop-stock-spike-wall-street-happen-75860206"}