It caused the New York Stock Exchange to halt trading nine times, triggered a White House alert, and drew attention from regulators across the world. ‘Big Short’ investor Michael Burry says ‘prepare for inflation’ and warns bitcoin and gold might be at risk Theron Mohamed Feb. With speculation on sub-reddits like WallStreetBets suggesting GameStop’s value might increase, users began to realise they were moving the stock price upwards. Because a stock can technically rise to any value, losses stemming from a stock ‘short’ can be infinite – so it’s a risky strategy to take. This is because they’ll be forced to buy back the stock at a higher price to give to the person they borrowed it from. If their assumption is wrong, and the stock price goes up, then they’ll lose money. However, a stock ‘short’ only works if the stock price decreases in value – which is why hedge funds and investors use it to bet against the future value of a company. If the stock goes down, the investor can then buy back the stock at a lower price, return the stock to the person they borrowed it from, and the investor will retain a profit. The investor then sells the borrowed stock at the market price (which they think is inflated).

To short a stock, an investor will temporarily borrow some stocks from an existing stockholder with the promise they’ll give the stock back in the future. If an investor thinks that the future stock price of a company is going to decrease, they can opt for what’s called a ‘stock short’.

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