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But, as many traditional investors and analysts point out, these viral stocks can be very risky since they rely on high interest from small investors to sustain the stock prices’ liftoff “to the moon.” GameStop and other such meme stocks are publicly traded equities whose stock price is heavily influenced by social media. “Both prices and trading volumes of meme stocks may be exceptionally volatile, as the hype on platforms like Reddit can cause spikes in demand,” Britannica Money also wrote. Unlike with traditional stocks you may invest in, the price performance of a meme stock is generally not based on the company’s underlying fundamentals.
Top meme stocks right now
When online investors understood the short positions against GameStop, people took it on as a Robin Hood-like adventure (often using the trading app Robinhood to do so). As a result, hordes of investors started buying GameStop stock, making it very expensive for the hedge funds to buy back from their short positions. Part of the motivation behind the online support for certain meme stocks comes from hedge funds’ short positions in those companies. In general, many of the meme stocks that saw sky-high stock prices in 2021 have come down significantly in 2022. They are often now trading below where they started before the meme frenzy.
Meme stock crazes, which in the past have been driven largely by investors on social media platforms and in online forums like Reddit, cause certain stocks to go viral. Perhaps the most famous in recent history was the WallStreetBets Reddit thread that encouraged people to buy GameStop and AMC Entertainment stock at the beginning of 2021. Single stock ETFs have also recently been introduced, which provide leveraged long or short positions on a single stock. Only a small number of these have been approved for trading so far, but do include some meme stocks like Tesla and NVIDIA. Unlike online pump-and-dump schemes aimed at defrauding unwitting investors, the promotion of meme stocks largely involves buying and holding with the above-mentioned strong hands even after the price spikes.
- Our estimates are based on past market performance, and past performance is not a guarantee of future performance.
- Former president Donald Trump’s social media company, Truth Social, could be considered a meme stock.
- Investing can be the most surefire path to becoming and remaining financially free.
- Regardless, the sudden resurgence of meme stocks in May 2024 served as a reminder of the unpredictable nature of markets and the power of social media to drive investor behavior.
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How meme stocks work
Dominated by younger investors, meme stocks are still seen as a way to generate outsized returns in a short period, especially in the face of rising housing costs and inflation in general. But meme stocks also remain very volatile and risky, and retail investors are likely to be the ones to experience the most losses when it all comes crashing down. The YouTube persona Roaring Kitty posted a future viral video laying out the case for why shares of brick-and-mortar video game retailer GameStop Corp. (GME) could soar from $5 to $50 per share in August 2020.
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The GameStop short squeeze demonstrated the powerful solidarity that online communities can elicit—and how it can be harnessed to affect real-world outcomes. In late January 2021, regulators began monitoring trading activity for meme stocks. Concerned about potential market manipulation and overall stability in the financial markets, the U.S. Securities and Exchange Commission (SEC) and other financial watchdogs started closely observing how meme stocks were being traded.
What It Means for Individual Investors
Let’s dive into the latest in the land of meme stocks and why it might matter for you. Though the idea of amassing crazy wealth overnight is obviously appealing, the reality is that the odds are heavily stacked against anyone trying to outsmart the market. The meme investors who walked away with a lot of money were arguably just very lucky.
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If many shorts are forced to cover at once, it adds additional upward pressure on the stock’s price as they are all forced to easymarkets broker review buy the stock and cover at ever higher prices. This is known as a short squeeze, and it accelerates a stock’s price increases as more and more short sellers are forced to bail out to cut their losses. Stocks are sold short on margin (because they involve borrowed shares). As the price of the shorted stock rises, the short seller will begin to experience losses. These losses must be covered in a timely fashion, often prompted via margin calls, whereby the broker demands funds to make up for those paper losses. Market analysts and observers drew parallels between the 2024 rally and the original meme stock phenomenon of 2021.
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Less than two years later, after the initial meme stock craze had largely died down and in true meme stock fashion, Roundhill announced the closure of the Meme Stock ETF. According to media reports at the time, the reason for the closure was lack of interest from day traders and too little trading volume. The International Review of Economics & Finance wrote that meme stocks became popular through the social media platform Reddit.com, specifically, subreddit.com, also known as WallStreetBets. “Retail trading in meme stocks is facilitated by social media, which are used as coordination devices to synchronize buy xor neural network signals,” the review wrote.