I know little-to-nothing about stock trading. Can someone please give me the "Dummie's" version of

[Yavin4]

1. When it comes to trading stocks, you can take a short position on the direction of the stock.

What that means is that you feel that a stock will be worth less tomorrow than it is today. So, you enter into an agreement where you will borrow the value of that stock today and in return, you will pay back that stock at its value in the future.

For example, a stock today trades at $50 a share, and you take a short position. You borrow the $50, the price of the stock today, with the promise that you will repay the stock at its value in the future. Now, it's a week later, and the stock now trades at $10 a share. You re-pay your loan of $50 with the value of the stock which is now only $10. In essence, you made $40 profit.

Hedge funds and other big money types short stocks at times to drive down their prices, so that they can do what I just explained on a massive scale. Most of the time, this happens because a corporation is facing difficult times ahead,

Game Stop, a brick and mortar retailer, is one such struggling company. Given the pandemic and the overall decline of retail, it's a prime candidate for a short sell. Borrow the value of its stock today because it will be worthless in the future.

Here's where that Reddit community comes in. A bunch of day traders starting buying up Game Stop's stock which made the value of the stock rise. So now, those hedge funds that had short positions in that stock are facing huge losses because in order to settle their short positions, they have to pay back more money than they originally borrowed because the stock price went up, not down.