If you have heard anything about the stock market recently, it probably had something to do with GameStop. The stock’s blinding rally in the markets shocked everyone and revealed the power of the collective in a newfound way.

The stock market is a virtual place where stocks are bought and sold. A stock, also referred to as a share, represents the ownership of a fraction of a company. Hence, the stock market is a place where companies sell their stocks (partial ownership) to raise money for new projects. Individual and institutional investors buy stocks in companies that they feel show growth potential. These stocks are then sold to other people in exchange for money. On occasion, companies reward investors with a portion of their profits as dividends.When people buy stocks, they either expect dividends — quarterly or annual payments from the company’s profits paid for holding a stock — or capital gains — profits made from an increase in the stock price.

People are free to buy, hold or sell a stock at their discretion. For this reason, people usually invest in companies that are making, or are expected to make, significant profits. The principle is that stock prices are tied to a company’s overall performance and growth prospects. Any time an investor bets on a company’s growth, they buy its stock. This is called a long position. The stock price can go up and down, and the investor has the freedom to sell at the market price whenever they see fit. If the market price increases and the investor sells it, they keep the profit — and pay taxes on the said profit. If the price decreases, they can lose up to 100% of their invested money. Ideally, investors would want to buy at a low price to then sell at a high one.

GameStop (NYSE: GME) is a company that sells video games, consoles and related merchandise in its more than 5,500 stores. With the advent of online retail, shoppers do not go into stores as much as they used to. Moreover, most new video games are released as downloadables; that is, you never need a physical copy — such as a CD — of the game. Both are potential reasons why GameStop has been running losses for nearly two years. As a consequence, reasonable investors did not expect GameStop to perform well in the stock market. Many placed their bets on its failure.

When investors bet on a company’s stock price falling, they do the opposite of a long, called a short position or a short sell. They sell the stock before they buy it. Essentially, when you short a stock, the investor uses their brokerage — a middleman that facilitates transactions — and borrows some stock. This is usually against some collateral — a kind of security deposit. These borrowed stocks are then sold in the market. After some time, they buy back the same number of stocks as they had borrowed — ideally at a lower price. They close their position, which means that they return the stocks to their brokerage. Investors profit from the difference in prices if they sell the borrowed stock at a lower price. If they sell it at a higher price, they pay for the difference.

First, short positions involve transaction costs — it costs money to sell and buy stocks. Secondly, the brokerage firms can technically ask for their stocks back at minimal notice, which may not be at the right time for the investor. Thirdly, there are no limits to how much you can lose. When the stock price goes down, it can hit 0 U.S. dollars at most, making investors close to a 100% return or profit. However, when the price goes up, there is no maximum price — one’s losses are theoretically limitless.

Hedge Funds — organizations that take pools of money and attempt to achieve returns on it in the market — believed that GameStop stock would go down, so they heavily shorted it. GameStop wasn’t alone; many other stocks, including AMC, BlackBerry and Koss, were also shorted. GameStop probably took most of our attention because of how unilaterally the rally came from Reddit and was driven by “meme value.” r/WallStreetBets, or r/wsb for short — a community based on young people investing, making memes and talking banter — just wanted to prove the hedge funds wrong. So it did. On Jan. 12, GameStop’s stock price closed at 19.95 U.S. dollars. On Jan. 27, it touched 380 U.S. dollars at its highest, i.e., an 1805 percent increase in the stock price within 14 days. This was a meteoric rise fuelled by heavy calls of “GME ? ?” on r/wsb, and a horde of retail investors, individual investors like you and me, using apps like Robinhood to buy up the stock, in an attempt to stick it to Wall Street. They caused a market rally on their own.

The stock market, just like any market, functions according to the laws of demand and supply. When demand for a stock increases and more quantities are bought, the stock price goes up because there is a limited number of stocks from each company trading in the market. When the price goes up, short-sellers start getting squeezed and lose money. The brokerages might demand their stocks back, and it costs more collateral — security deposits — to enter any further short positions. Against increasing pressures, some investors have to close their positions, resulting in billions of dollars in losses in the case of GameStop. This also pushes the price up, since investors have to buy back the shares they had borrowed before, making it more expensive for other investors to close their short positions. GameStop was shorted over 100 percent, which means more people promised to buy it back than the number of GameStop shares in existence. r/wsb’s potential endgame is to cause a short squeeze, a rapid increase in stock price solely because of cascading reaction, which hurts the hedge funds who shorted the stock.

Robinhood and other trading platforms banned people from buying, but not from selling, GameStop shares, and then removed the ban but placed trading limits. This caused the stock price to fall steeply, in what must have been a sigh of relief for some of the hedge funds who were short. This move was widely unpopular, uniting politicians from across the political spectrum in criticizing Robinhood. Robinhood claims this is because their clearinghouse — the entity that clears all buy and sell orders and makes them “official” — demanded 3 billion U.S. dollars in cash as collateral due to the extreme volume of trades. The details of this event are murky. Robinhood’s actions could be easily seen as siding with the hedge funds, as the crash in prices benefitted them. It cannot be definitively ascertained whether the ban was avoidable, but it definitely warrants more scrutiny.

So far, the chain reaction of a short squeeze has not been set off. With the stock suffering sharp losses this week, there is significant uncertainty. More than half of the short positions on GameStop have been exited already without setting off the short squeeze. It is unlikely that this bubble of speculation, mostly detached from the actual performance of GameStop, can make the dent on Wall Street that the users on r/wsb claim it will.