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

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]

See also

Related Research Articles

<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">Short (finance)</span> Practice of selling securities or other financial instruments that are not currently owned

In finance, being short in an asset means investing in such a way that the investor will profit if the market value of the asset falls. This is the opposite of the more common long position, where the investor will profit if the market value of the asset rises. An investor that sells an asset short is, as to that asset, a short seller.

A mutual fund is an investment fund that pools money from many investors to purchase securities. The term is typically used in the United States, Canada, and India, while similar structures across the globe include the SICAV in Europe, and the open-ended investment company (OEIC) in the UK.

<span class="mw-page-title-main">Day trading</span> Buying and selling financial instruments within the same trading day

Day trading is a form of speculation in securities in which a trader buys and sells a financial instrument within the same trading day, so that all positions are closed before the market closes for the trading day to avoid unmanageable risks and negative price gaps between one day's close and the next day's price at the open. Traders who trade in this capacity are generally classified as speculators. Day trading contrasts with the long-term trades underlying buy-and-hold and value investing strategies. Day trading may require fast trade execution, sometimes as fast as milli-seconds in scalping, therefore direct-access day trading software is often needed.

<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, known as the Wall Street of Mumbai, in turn described as the New York of India. 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 8th largest stock exchange with a market capitalization exceeding US$4.5 trillion as of January 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, as of January 2024. NSE's flagship index, the NIFTY 50, a 50 stock index 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.

In finance, a contract for difference (CFD) is a legally binding agreement that creates, defines, and governs mutual rights and obligations between two parties, typically described as "buyer" and "seller", stipulating that the buyer will pay to the seller the difference between the current value of an asset and its value at contract time. If the closing trade price is higher than the opening price, then the seller will pay the buyer the difference, and that will be the buyer's profit. The opposite is also true. That is, if the current asset price is lower at the exit price than the value at the contract's opening, then the seller, rather than the buyer, will benefit from the difference.

An investment company is a financial institution principally engaged in holding, managing and investing securities. These companies in the United States are regulated by the U.S. Securities and Exchange Commission and must be registered under the Investment Company Act of 1940. Investment companies invest money on behalf of their clients who, in return, share in the profits and losses.

<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.

<span class="mw-page-title-main">TD Ameritrade</span> American online broker

TD Ameritrade was a stockbroker that offered an electronic trading platform for the trade of financial assets including common stocks, preferred stocks, futures contracts, exchange-traded funds, forex, options, mutual funds, fixed income investments, margin lending, and cash management services. The company received revenue from interest income on margin balances, commissions for order execution, and payment for order flow.

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 that 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.

Robinhood Markets, Inc. is an American financial services company headquartered in Menlo Park, California. It operates an electronic trading platform that facilitates commission-free trades of stocks, exchange-traded funds and cryptocurrencies as well as individual retirement accounts via a mobile app introduced in March 2015. Robinhood is a FINRA-regulated broker-dealer, registered with the U.S. Securities and Exchange Commission, and is a member of the Securities Investor Protection Corporation. The company's revenue comes from three main sources: interest earned on customers' cash balances, selling order information to high-frequency traders and margin lending. As of December 2023, Robinhood had 23.4 million funded accounts and 10.9 million monthly active users. In April 2022, Robinhood rolled out a cryptocurrency wallet to more than 2 million users.

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 and profane jargon, aggressive trading strategies, and for playing a major role in the GameStop short squeeze that caused losses for some US firms and short sellers in a few days in early 2021.

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 analyst and investor known for his posts on the subreddit r/wallstreetbets. 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 a US$53,000 investment into one worth close to $50 million.

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 headquartered in Miami. It is one of the largest market makers in the world, and is active in more than 50 countries. It is the largest designated market maker on the New York Stock Exchange.

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.
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.