Wall Street up in arms after amateur traders send GameStop stock soaring

An army of novice investors loosely organizing on Reddit have shaken up all preconceived notions about the stock market after fueling the meteoric rise of the struggling video game retailer.
3:48 | 01/28/21

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Transcript for Wall Street up in arms after amateur traders send GameStop stock soaring
Now to a David versus goliath showdown. Amateur day traders at home on inexpensive apps taking down giant Wall Street hedge funds to the tune of billions of dollars. It is making the market crazy driving up the price of a stock of a company you wouldn't expect and making some people a lot of money. Bottom line, it's a wild ride and Rebecca Jarvis is here to break it all down. Good morning, Rebecca. Reporter: Good morning, robin. It is wild. And we've seen lately all of these examples of stories where people express an idea on the idea. It actually impacts real world behavior. This one began with a stock tip on a website followed primarily by millenial and gen Z men and moved billions of dollars in stocks. This morning the financial world in a frenzy. Let's get to gamestop. Gamestop. This gamestop is really something we must talk about. Reporter: Shares of struggling video retailer gamestop which has closed more than 800 locations in the last two years defying gravity up 1,700% this year, gamestop more than doubling yet again thanks to a growing group of young mostly male amateur day traders taking on some of wall Street's most powerful hedge funds in an epic David versus goliath showdown. President Biden's team even asked about it Wednesday. Our team is, of course, our economic team including secretary Yellen and others are monitoring the situation. Reporter: The young speculators inspired by a community on Reddit called wall Street bets followed by over 4 million readers. Posts to Wall Street bets recently exposed a serious exploitable vulnerability in gamestop stock. A number of influential wall Street investors were heavily shorting it which meant they were betting the stock would crash. You borrow shares of the tock and you sell it and if the price goes down then you can buy it back at that lower price and pocket that difference. But if you're wrong and the shares go up, then you're going to have to buy back the stock at that higher price and that difference is a loss for you, that's painful. Reporter: As it turns out, the Wall Street titans were very wrong. 19-year-old J.P. Hurtado and others starting buying sending gamestop soaring. When people something go up, they'll have a fear of missing out. Because more and more people keep popping in the price keeps going up. Reporter: J.P. A student who never traded a single stock until a year ago bought about $8,000 of gamestop using robin hood and says by the close of Wednesday it was worth $82,000. With amateurs like him profiting, hedge fund titans have lost an estimated $5 billion. This is uncharted territory and it's a very interesting question as to what happens next. Certainly there's no mechanism to make it stop immediately. Reporter: And that is a big question now facing regulators. The S.E.C., for example, says it is actively monitoring the volatility and it is working with other regulators to assess the situation. Rebecca, we were talking about this on the show yesterday. There are a lot of risks here with these people who are new to investing. They could lose a lot of money. Reporter: You can lose a lot of money and it can happen very quickly, robin and that's the thing. These new trading tools, for example, really make trading into a game and in some cases that can be great and help people get an education, learn about stock investing, of course, stock investing for the long term if you put that money into an I.R.A., a 401(k) For the long term, historically speaking it pays off but in this case, robin, you have to be careful, tread lightly as though you are walking into a casino, robin. Like it's gambling.

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

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