• Rookie day traders caused the shares of GameStop to surge by 400%
  • Participants organized wallstreetbets to 'punish' Wall Street short-sellers
  • The buying frenzy raised GameStop's share price to $200 from $4 

A group of rookie day traders on Wednesday caused shares of video game retailer GameStop to surge more than 400% after being spurred on by the WallStreetBets subreddit message board, making it one of the most anticipated Wall Street events.

In recent weeks, users posting on WallStreetBets rallied behind GameStop after Wall Street hedge fund short sellers bet that the company’s stock prices would fall as it struggles to convert its brick-and-mortar business to a digital one.

Some participants had organized the message board in an effort to build a community of rookie traders to “punish Wall Street” and “democratize” trading.

The GameStop surge began on August 2020 when Chewy co-founder Ryan Cohen revealed he had a major stake in the e-commerce company. He helped push GameStop away from its physical stores and revolve around digital sales.

On Jan. 11, GameStop announced that it had appointed Cohen and two new directors to its board, causing its stocks to rise by nearly 13% the same day.

The announcement also spurred a group of day traders on Reddit to buy tons of the retailer’s options as a payback to short-sellers who bet against the company. The buying frenzy forced short-sellers to buy shares to cover the money they lost over their losing bids.

Tesla CEO Elon Musk also rallied behind GameStop’s stock. On Tuesday, he published a tweet with a link to the WallStreetBets subreddit page, leading the retailer’s stock to soar by 60%.

On Wednesday, GameStop finished up 134%, with a single share now costing $200. In comparison, a single GameStop share cost approximately $4 in 2020.

Several analysts said the buying frenzy could destabilize the market. Many also warned against investing money in risky schemes.

“GameStop has become a pyramid scheme,” Michael Pachter, an analyst with Wedbush Securities told The Washington Post. “Pyramid schemes work as long as new investors believe there will be new investors behind them; when it’s clear nobody else is going to come in, they are less likely to participate.”

On Wednesday evening, volunteer moderators briefly set the WallStreetBets forum to private as the company conducted a review on whether the message board violated site-wide policies against soliciting illegal transactions. The group was opened to the public again moments later.

Social platform Discord banned the WallStreetBets chat room on Wednesday after it had “allowed hateful and discriminatory content” despite repeated warnings.

“Over the past few months, we have issued multiple warnings to the server admin,” a Discord spokesperson said. “Today, we decided to remove the server and its owner from Discord for continuing to allow hateful and discriminatory content after repeated warnings.”

Facade with sign and logo at Game Stop video gaming store in Dublin, California, Aug. 3, 2018. Smith Collection/Gado/Getty Images