Loose grip

2 February 2021 By Liam Proud Follow @liamwardproud

Melvin Capital suffered huge losses after retail traders pushed up the share prices of companies against which it had bet. Such traps can be avoided by using derivatives. And small investors will struggle to boost the value of larger companies in the way they did with GameStop.

This content is for Subscribers only

Context News

Hedge fund Melvin Capital Management lost 53% in January but received commitments for fresh cash from investors in the last days of the month, Reuters reported on Jan. 31 citing a source familiar with the matter. Melvin ended January with more than $8 billion in assets after starting the year with roughly $12.5 billion.

The fund was shorting video-game retailer GameStop. Retail investors using online message board Reddit bid up prices in the company’s shares to force hedge funds betting on a decline to buy shares to cover their losses. This so-called short squeeze caused GameStop’s market capitalisation to rise to $24 billion on Jan. 27 from roughly $1 billion in the middle of December.

Email a friend

Please complete the form below.

Required fields *