Reddit day traders miss the point of hedge funds
Hedge funds have attracted the ire of day traders reading Reddit, but they do a lot more than simply short stocks
4 February 2021 • 3:00pm
Hedge funds have become public enemy number one in the eyes of “meme traders” who have sent shockwaves through stock markets in the last week.
Their crime? Short selling: borrowing shares and immediately selling them at the market price in the hope of buying them back at a lower price and pocketing the difference.
An army of day traders took exception to this tactic, and helped pump up stocks such as GameStop, a struggling US retailer that had been heavily shorted on Wall Street. As the share price went parabolic, hedge funds found themselves caught in a squeeze, scrambling to cut their losses by buying back the stock.