GameStop shares plunge 34pc as day traders nurse huge losses

The erratic trading in shares of underdog companies like GameStop appears to have migrated to commodities. Photo / Nicole Pereira/New York Stock Stock Exchange

Day traders were nursing bruising losses on Monday after shares in GameStop, the US video games store that has surged on interest from speculative investors, crumbled by a third.

The US video games retailer saw its valuation catapulted to more than US$25 billion last week on the back of huge demand from internet investors, many of them buying in an effort to push back at hedge funds who had bet against the stock.

The efforts have been promoted on the Reddit internet forum, WallStreetBets, where investors have called on others to "hold" and continue buying even as the stock skyrocketed.

However, shares were briefly halted for a few minutes on Monday after the stock plunged by as much as 34 per cent as bearish investors appeared to cover their positions while retail traders flocked to commodities such as silver.

Some buyers posted pictures of their accounts on stock trading apps, showing purchases near the market top of around US$322 on Monday. Shares sank to around US$220, but remain several thousand per cent up on their value last summer, when GameStop shares traded at around US$4.

On the WallStreetBets forum, some users accused others of distracting the group from buying GameStop shares and turning to other assets, such as silver.

Interest in GameStop started among amateur traders last year, with the stock heavily bet against by short sellers. The surge in its stock price to more than US$400 has left some users, and hedge funds, with paper gains in the tens of millions of pounds.

Short sellers borrow stocks and immediately sell them, planning to buy the shares back when the price falls lower. This can lead to large profits.

However, if the share price goes up, as in the case of GameStop, they can be left nursing huge losses.

GameStop's decline came as short interest for the company plunged to 53 per cent of its available shares, from more than 140 per cent just last month, according to data from financial analytics firm S3 Partners.

Reddit users have taken up what many have called a personal vendetta against Wall Street short sellers. The surge in GameStop's share price cost one hedge fund more than US$7b, according to the Wall Street Journal.