Meme stock

Last updated

A meme stock is a stock that gains popularity among retail investors through social media. [1] [2] [3] The popularity of meme stocks is generally based on internet memes shared among traders, [4] on platforms such as Reddit's r/wallstreetbets. [5] Investors in such stocks are often young and inexperienced investors. [6] As a result of their popularity, meme stocks often trade at prices that are above their estimated value –as based on fundamental analysis  – [7] [8] and are known for being extremely speculative and volatile. [9] [10] [11]

Contents

A GameStop store facade in Queens, New York City. Fresh Meadows Place td (2022-09-13) 28 - GameStop.jpg
A GameStop store facade in Queens, New York City.

History

Interest in meme stocks started in 2020, [4] in what the U.S. Securities and Exchange Commission has called a "meme stock phenomenon". [12] The stock of American video game retailer GameStop has been one of the most popular meme stocks, [13] [14] with mass purchases of the stock leading to a short squeeze on GameStop in early 2021. [5] The stock of entertainment company AMC is also cited as a prominent example. [15] [14] Other examples include the stocks of Bed, Bath & Beyond, National Beverage, and Koss. [16] The distinction between a meme stock and a non-meme stock is not always clear; for example, Tesla has some of the characteristics of a meme stock: a high price-earnings ratio and being frequently discussed by amateur retail traders on social media, yet some professional analysts do not consider it to be overpriced. [17]

Interest in meme stocks is associated with trading platform Robinhood, which pioneered [18] commission-free trading. [19] According to TheNew York Times, "Robinhood was the tool of choice for traders in the original meme stocks". [20]

Some meme stocks have often become popular among retail investors after being targeted by short-selling professional investors, such as hedge funds, [21] [22] [23] with participants having the explicit aim of causing losses among those firms. [21] [23] News coverage has described the choice to purchase such stocks as an act of rebellion intended to humble short-selling professional investors. [24]

According to an SEC report, while some hedge funds had big losses, the meme stocks phenomenon did not widely impact hedge funds. [25] [26] The SEC staff report also stated, "some investors that had been invested in the target stocks prior to the market events benefitted unexpectedly from the price rises, while others, including quantitative and high-frequency hedge funds, joined the market rally to trade profitably." [26] By June 2021, according to Financial Times , some hedge funds were systematically analyzing meme stocks. [27]

On July 5, 2024 Reddit users speculated that Keith Gill, who was previously involved in the GameStop meme stock fad, was about to invest in headphone maker Koss Corporation around July 4th (US Independence Day) after a May post by him in which a microphone emoji appeared with a US flag on the backdrop. As a result of the speculation, a single Koss share raised to $18.50 before ending at $13.35 in that day's session. [28]

See also

Related Research Articles

<span class="mw-page-title-main">Stock exchange</span> Organization that provides services for stock brokers and traders to trade securities

A stock exchange, securities exchange, or bourse is an exchange where stockbrokers and traders can buy and sell securities, such as shares of stock, bonds and other financial instruments. Stock exchanges may also provide facilities for the issue and redemption of such securities and instruments and capital events including the payment of income and dividends. Securities traded on a stock exchange include stock issued by listed companies, unit trusts, derivatives, pooled investment products and bonds. Stock exchanges often function as "continuous auction" markets with buyers and sellers consummating transactions via open outcry at a central location such as the floor of the exchange or by using an electronic system to process financial transactions.

<span class="mw-page-title-main">Stock market</span> Place where stocks are traded

A stock market, equity market, or share market is the aggregation of buyers and sellers of stocks, which represent ownership claims on businesses; these may include securities listed on a public stock exchange as well as stock that is only traded privately, such as shares of private companies that are sold to investors through equity crowdfunding platforms. Investments are usually made with an investment strategy in mind.

<span class="mw-page-title-main">Bombay Stock Exchange</span> Indian stock exchange in Mumbai

BSE Limited, also known as the Bombay Stock Exchange (BSE), is an Indian stock exchange which is located on Dalal Street. Established in 1875 by cotton merchant Premchand Roychand, it is the oldest stock exchange in Asia, and also the tenth oldest in the world. The BSE is the world's 6th largest stock exchange with a market capitalization exceeding US$5 trillion on May 21, 2024.

<span class="mw-page-title-main">National Stock Exchange of India</span> Indian securities marketplace

National Stock Exchange of India Limited (NSE) is one of the leading stock exchanges in India, based in Mumbai. NSE is under the ownership of various financial institutions such as banks and insurance companies. It is the world's largest derivatives exchange by number of contracts traded and the third largest in cash equities by number of trades for the calendar year 2022. It is the 7th largest stock exchange in the world by total market capitalization, exceeding $5 trillion on May 23, 2024. NSE's flagship index, the NIFTY 50, is a 50 stock index that is used extensively by investors in India and around the world as a barometer of the Indian capital market. The NIFTY 50 index was launched in 1996 by NSE.

<span class="mw-page-title-main">Short squeeze</span> Rapid increase in the price of a stock owing primarily to technical factors

In the stock market, a short squeeze is a rapid increase in the price of a stock owing primarily to an excess of short selling of a stock rather than underlying fundamentals. A short squeeze occurs when demand has increased relative to supply because short sellers have to buy stock to cover their short positions.

In finance, a contract for difference (CFD) is a financial agreement between two parties, commonly referred to as the "buyer" and the "seller." The contract stipulates that the buyer will pay the seller the difference between the current value of an asset and its value at the time the contract was initiated. If the asset's price increases from the opening to the closing of the contract, the seller compensates the buyer for the increase, which constitutes the buyer's profit. Conversely, if the asset's price decreases, the buyer compensates the seller, resulting in a profit for the seller.

<span class="mw-page-title-main">Stock trader</span> Person or company involved in trading equity securities

A stock trader or equity trader or share trader, also called a stock investor, is a person or company involved in trading equity securities and attempting to profit from the purchase and sale of those securities. Stock traders may be an investor, agent, hedger, arbitrageur, speculator, or stockbroker. Such equity trading in large publicly traded companies may be through a stock exchange. Stock shares in smaller public companies may be bought and sold in over-the-counter (OTC) markets or in some instances in equity crowdfunding platforms.

Payment for order flow (PFOF) is the compensation that a stockbroker receives from a market maker in exchange for the broker routing its clients' trades to that market maker. It is a controversial practice that has been called a "kickback" by its critics. Policymakers supportive of PFOF and several people in finance who have a favorable view of the practice have defended it for helping develop new investment apps, low-cost trading, and more efficient execution.

Jason Mudrick is an American investment manager who founded and became chief investment officer of Mudrick Capital Management, an investment firm focused on special situations such as distressed securities and deep value event driven investing.

<span class="mw-page-title-main">Robinhood Markets</span> US-based financial services company

Robinhood Markets, Inc. is an American financial services company headquartered in Menlo Park, California. The company provides an electronic trading platform accessible via mobile app that facilitates commission-free trades of stocks, exchange-traded funds and cryptocurrency, as well as cryptocurrency wallets, credit cards and other banking services. The company's revenue comes from transaction-based revenues, net interest income, and subscription fees. The company has 24.2 million funded customers, 11.8 million monthly active users, and $140 billion in assets under custody.

Mudrick Capital Management is an American investment firm and vulture fund specializing in special situations and event driven investing that include investing in distressed securities. The firm was founded by Jason Mudrick, its current Chief Investment Officer, in 2009. The firm is located in New York City and, as of June 2022, managed approximately $3.3 billion in assets.

<span class="mw-page-title-main">Melvin Capital</span> American investment management firm

Melvin Capital Management LP was an American investment management firm based in New York City. It was founded in 2014 by Gabriel Plotkin, who named the firm after his late grandfather.

r/wallstreetbets Subreddit dedicated to stock market and options trading

r/wallstreetbets, also known as WallStreetBets or WSB, is a subreddit where participants discuss stock and option trading. It has become notable for its colorful jargon, aggressive trading strategies, stories of extreme gains and losses acquired in the stock market, and for playing a major role in the GameStop short squeeze that caused significant losses for a number of US hedge funds and short sellers for a duration of time in early 2021.

<span class="mw-page-title-main">BUX (brokerage)</span> Amsterdam-based financial services company

BUX is a European mobile brokerage company, based in Amsterdam and London. Retail investors buy shares, ETFs and cryptocurrency through the BUX app. BUX allows users CFD trading through its Stryk app and crypto trading using the BUX Crypto platform.

Webull Corporation is an electronic trading platform, accessible via mobile app and desktop computer, offering commission-free and low-cost trading of stocks, exchange traded funds, options, margins, fixed income, and futures.

Keith Patrick Gill is an American financial marketer and educator and individual investor known for his posts on the subreddits r/wallstreetbets and r/SuperStonk. His analyses of GameStop stock and details of his resulting investment gains—posted on Reddit under the username DeepFuckingValue (DFV) and on YouTube and Twitter as Roaring Kitty, were cited as a driving factor in the GameStop short squeeze of January 2021, and as a spark for the subsequent trading frenzy in retail stocks. The rising stock value allowed Gill to turn an initial US$53,000 investment into $50 million by January 2021. Between 2021–2024, Gill kept a low profile but continued to increase his GameStop ownership. As of June 2024, Gill owns 9 million shares of GameStop valued at approximately $250 million, making him one of the company’s top five largest shareholders. However, there does not appear to be a 13G filling related to this position for GameStop with SEC nor does he appear to be in the top 10 public shareholders of GameStop.

In January 2021, a short squeeze of the stock of the American video game retailer GameStop and other securities took place, causing major financial consequences for certain hedge funds and large losses for short sellers. Approximately 140 percent of GameStop's public float had been sold short, and the rush to buy shares to cover those positions as the price rose caused it to rise even further. The short squeeze was initially and primarily triggered by users of the subreddit r/wallstreetbets, an Internet forum on the social news website Reddit, although a number of hedge funds also participated. At its height, on January 28, the short squeeze caused the retailer's stock price to reach a pre-market value of over US$500 per share, nearly 30 times the $17.25 valuation at the beginning of the month. The price of many other heavily shorted securities and cryptocurrencies also increased.

<span class="mw-page-title-main">Citadel Securities</span> American market making firm

Citadel Securities LLC is an American market making firm providing liquidity and trade execution to retail and institutional clients, headquartered in Miami. The firm also trades futures, equities, credit, options, currencies, and Treasury bonds. It is the largest designated market maker on the New York Stock Exchange.

<span class="mw-page-title-main">American Battery Technology Company</span> Battery recycling company

American Battery Technology Company, formerly American Battery Metals Corporation, is a US-based battery recycling technology startup founded in 2011. It employs a hydrometallurgical process to recycle batteries and a targeted extraction system to extract raw materials from primary resources.

Joshua Mitts is an American legal scholar. He is associate professor of law and Milton Handler Fellow at Columbia Law School. He is known for his research into short activism and its alleged market abuses.

References

  1. ↑ Griffith, Erin (2021-06-23). "No End to Whiplash in Meme Stocks, Crypto and More". The New York Times. ISSN   0362-4331. Archived from the original on 2021-10-21. Retrieved 2021-10-20.
  2. ↑ Langley, Karen (2021-06-04). "AMC Leads Meme Stocks on a Wild Ride". Wall Street Journal. ISSN   0099-9660. Archived from the original on 2021-10-21. Retrieved 2021-10-20.
  3. ↑ U.S. Securities and Exchange Commission (October 14, 2021). Staff Report on Equity and Options Market Structure Conditions in Early 2021 (PDF). p. 15. Archived (PDF) from the original on October 30, 2021. Retrieved October 20, 2021.{{cite book}}: CS1 maint: date and year (link)
  4. 1 2 "Year of the Meme Stock: Hertz, Kodak Top List of 2020 Highlights". Bloomberg.com. 2020-12-26. Archived from the original on 2021-10-23. Retrieved 2021-10-20.
  5. 1 2 Darbyshire, Madison; Oliver, Joshua (2021-05-25). "Reddit forum discussions swing from meme stocks to cryptocurrencies". Financial Times. Archived from the original on 2021-10-23. Retrieved 2021-10-20.
  6. ↑ "Are "meme stocks" harmless fun, or a threat to the financial old guard?". The Economist. 2021-07-06. ISSN   0013-0613. Archived from the original on 2021-10-23. Retrieved 2021-10-20.
  7. ↑ Chung, Matt Wirz and Juliet (2021-06-11). "WSJ News Exclusive | AMC Bet by Hedge Fund Unravels Thanks to Meme-Stock Traders". Wall Street Journal. ISSN   0099-9660. Archived from the original on 2021-10-22. Retrieved 2021-10-20.
  8. ↑ Alloway, Tracy (27 January 2021). "How 'Flows Before Pros' Is Disrupting Stock Markets". Bloomberg. Archived from the original on 23 October 2021. Retrieved 20 October 2021.
  9. ↑ "The Meme Stocks Keep Coming". Bloomberg. 9 June 2021. Archived from the original on 30 October 2021. Retrieved 30 October 2021.
  10. ↑ Adamczyk, Alicia (9 June 2021). "Dogecoin? Meme stocks? Why 'boring' investments are still your best bet". CNBC. Archived from the original on 30 October 2021. Retrieved 30 October 2021.
  11. ↑ Li, Yun (2021-05-26). "Meme stocks GameStop, AMC are popping again as speculative trading ramps back up". CNBC. Archived from the original on 2021-11-01. Retrieved 2021-10-31.
  12. ↑ U.S. Securities and Exchange Commission 2021, pp. 15–16.
  13. ↑ Griffith, Erin (2021-03-13). "From Crypto Art to Trading Cards, Investment Manias Abound". The New York Times. ISSN   0362-4331. Archived from the original on 2021-10-20. Retrieved 2021-10-20.
  14. 1 2 Langley, Karen (2021-06-04). "AMC Leads Meme Stocks on a Wild Ride". Wall Street Journal. ISSN   0099-9660. Archived from the original on 2021-10-21. Retrieved 2021-10-20.
  15. ↑ "Meme Stocks Aren't New, But Their Biggest Fans Are". Bloomberg. 2021-06-16. Archived from the original on 2021-10-23. Retrieved 2021-10-20.
  16. ↑ U.S. Securities and Exchange Commission 2021, p. 21.
  17. ↑ Root, Al. "What Makes Tesla Worth $900 Billion? How One Analyst Gets There". www.barrons.com. Archived from the original on 2021-11-03. Retrieved 2021-10-29.
  18. ↑ Egan, Matt (2019-12-13). "This app completely disrupted the trading industry". CNN. Retrieved 2023-05-13.
  19. ↑ Darbyshire, Madison; Platt, Eric (2021-08-04). "Robinhood soars after retail traders flock to shares". Financial Times. Archived from the original on 2021-11-03. Retrieved 2021-10-20.
  20. ↑ Livni, Ephrat (2021-08-07). "Robinhood's Unfinished Business". The New York Times. ISSN   0362-4331. Archived from the original on 2021-10-22. Retrieved 2021-10-20.
  21. 1 2 Chung, Juliet (10 July 2021). "The Meme Stock Rally Hurt Melvin and Maplelane. It Hasn't Gotten Easier Since". Wall Street Journal. Archived from the original on 21 October 2021. Retrieved 21 October 2021.
  22. ↑ Phillips, Matt (3 June 2021). "AMC Cashes In on Meme Stock Mania, Raising $587 Million". The New York Times. Archived from the original on 21 October 2021. Retrieved 21 October 2021.
  23. 1 2 Lynch, David J.; Shaban, Hamza; Denham, Hannah; Newmyer, Tory (January 27, 2021). "GameStop, AMC shares surge after Reddit users lead chaotic revolt against big Wall Street funds". The Washington Post. Archived from the original on 17 September 2021. Retrieved 21 October 2021.
  24. ↑ U.S. Securities and Exchange Commission 2021, p. 3 and 25.
  25. ↑ Carlson, Anna (2021-10-18). "SEC says "Meme-Stock" surge earlier this year didn't broadly affect hedge funds". Newsweek. Archived from the original on 2021-10-29. Retrieved 2021-10-29.
  26. 1 2 U.S. Securities and Exchange Commission 2021, p. 22.
  27. ↑ Fletcher, Laurence; Darbyshire, Madison (2021-06-25). "Hedge funds rethink tactics after $12bn hit from meme stock army". Financial Times. Archived from the original on 2021-10-29. Retrieved 2021-10-29.
  28. ↑ McGee, Suzanne (2024-07-05). "Meme stock speculation propels Koss shares 25% higher on Friday". Reuters. Archived from the original on 2024-07-06. Retrieved 2024-07-06.
This page is based on this Wikipedia article
Text is available under the CC BY-SA 4.0 license; additional terms may apply.
Images, videos and audio are available under their respective licenses.