What is a short ladder attack? Will it affect GME stocks?

Jane Corscadden March 10, 2021
Photo by Artur Widak/NurPhoto via Getty Images

What is a short ladder attack? With news breaking that the GameStop stock may begin to crash, there are murmurs in the trading community that this could be due to a short ladder attack. But what does this really mean, and should you sell any stocks you have in GME?

What is a short ladder attack?

Put simply, a short ladder attack is when both sides of the buying and selling of stocks are played (by traders) in an attempt to devalue the stock in question.

Shorts manipulate the laws of supply and demand by flooding the offer side with fake shares.

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Then, this launches into what is known as a short ladder attack. Think of it this way: Short A sells a false share at £20. Short B then buys this share. Following from this, Short B will then offer a counterfeit short at £19. Short A will go for that offer or short B will come down and hit short A’s £19 bid.

Short A then buys the share for £19, covering its open £20 short and taking a £1 profit.

This process repeats, putting the stock price into a downward spiral. Shorts can then begin to flood the market with an attack of false offers, overwhelming the demand on the buying side.

At the minute, this appears to be happening with the GME stock, shown through its drastic drop in value in a quick span of time.

Should you sell your GME stocks?

Bloomberg reported that short interest in GameStop has plunged to 53% of available shares. This is down from more than 140% last month.

Such a big change in a short period of time has understandably made those who have bought stocks question whether they should now sell.

This manipulation of stock is an attempt to drive the price of the stock down, so retail investors aren’t as interested in investing in it.

So, it seems that retail investors shouldn’t sell their stocks in GME right now, as there’s every chance the price of the stock could bounce back.

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Jane is a freelance journalist from Belfast, Northern Ireland specialising in news, culture and politics. She studied Politics at Queen’s University Belfast before completing a Journalism MA at the University of Ulster. Always trawling social media and keeping up to date with the latest trends and crazes, her main interest lies in digital culture and internet trends.