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3 Lessons Investors Can Learn From GameStop’s Rise
While there has been no significant news about GameStop over the years, recently shares of GameStop have soared thanks to a popular Reddit group shocking everyone.
These Reddit traders completed a short squeeze against these hedge funds who had heavily betted that these companies would fail.
While many were able to gain substantially from GameStop almost overnight, there are a few lessons investors can take away from this extraordinary event.
1. Short Selling is Risky
There has always been a risk associated with short stocking, but this event proves how risky it can be.
Stocks have always been known for going up or down and shorting stocks exposes you to infinite risk.
When you normally invest you expose yourself to limited risk and unlimited potential gains, however when you short sell you can experience both limited gains and unlimited risk.
“If you short a stock at $5 and it goes up to $50, you could be forced to buy it back for 10 times more than what you paid for it.”
Because the shares are borrowed, you have to repay them, and the higher the stock climbs the more money you lose.