What Is A Meme Stock? A Quick Explainer For Investors in September 2024 – Lisa Kott
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Lisa Kott / Forex Trading  / What Is A Meme Stock? A Quick Explainer For Investors in September 2024

What Is A Meme Stock? A Quick Explainer For Investors in September 2024

what is meme stock mean

But short squeezes can still happen naturally in the market, so you would have to consider the circumstances surrounding a particular short squeeze to determine its legality. Before investing in any asset, consider learning how to invest money and how to invest in stocks online. It’s also essential to know about the fees and taxes you may have to pay. This volatility means their values can fluctuate dramatically over short periods of time in unpredictable manners. This is because their values are often tied to attention on social media platforms rather than the actual success of a company.

Risks And Rewards Of Investing In Meme Stocks

what is meme stock mean

As a general rule, the price of a T-bills moves inversely to changes in interest rates. Although T-bills are considered safer than many other financial instruments, you could lose all or a part of your investment. As a result, short sellers were forced to choose between buying the stocks back at increased prices or waiting out a fall in price.

Meme stocks continued to be all over the news in 2021, but their popularity has declined since the initial frenzy. GameStop stock traded between less than $1 and about $5 per share in 2020. However, due to the hype, its trading volume rapidly increased, and it climbed above $80 per share in January 2021. Here’s what meme stocks are and why they’re seeing renewed interest in 2024. High-Yield Cash Account.A High-Yield Cash Account is a secondary brokerage account with Public Investing.

Terms connected to meme stocks

This raised more than $1.5 billion in the first quarter (Q1) from voracious meme stock buyers. While not making any recommendations or indications about GME or any other stocks, these posts nevertheless reignited frenzied interest in meme stocks, causing a massive surge in trading volume and price. GameStop shares skyrocketed nearly 100% on Tuesday, May 14, 2024, following a 74% increase the previous day. This rapid price appreciation caught short sellers off guard, resulting in significant losses estimated at over $1.3 billion in just the two days following Gill’s tweets alone. This is because these stocks tend to receive value from their trending popularity on social media.

The Melvin Capital hedge fund didn’t account for this meme stock frenzy. It ended up losing 53% of its portfolio in January 2021 due to its short-selling bets on stocks of GameStop and other companies. During a short squeeze, more and more short sellers give up, accept their losses, and buy back the shares they shorted as the share price skyrockets for the remaining short sellers.

Investors typically need a margin brokerage account to short a stock. Margin accounts often require holding Futures market definition funds equaling 50% of the short position value. For example, short sellers may need to hold $1,000 in a margin account if they want to short sell 100 shares of a stock trading at $20.

What is a ‘short squeeze?’

Head to our Just Curious section to see what else we can answer for you. A “meme” is a term referring to a tidbit of culture — photographs, videos, phrases — that spread rapidly online through social sharing. Gill, who previously worked in marketing at an insurance firm, posted an image of a man leaning forward in his chair, a meme that is used by gamers to show that things are getting serious.

  1. According to the Corporate Finance Institute, it was then that online groups and communities developed interest in select companies’ shares and generated positive stories that they posted online to attract buyers.
  2. The ETF invested in GameStop, AMC, BlackBerry, and Digital World Acquisition Corporation (DWAC)—the special purpose acquisition company (SPAC) working to acquire former president Donald Trump’s Truth Social platform—at its launch.
  3. Tax considerations with options transactions are unique and investors considering options should consult their tax advisor as to how taxes affect the outcome of each options strategy.
  4. Rebate rates currently vary from $0.06-$0.18 per contract depending on the date of enrollment and number of referrals you make.
  5. Others, notably GameStop, remain elevated, although still far lower than its all-time highs.
  6. The above content provided and paid for by Public and is for general informational purposes only.

According to the Corporate Finance Institute, it was then that online groups and communities developed interest in select companies’ shares and generated positive stories that they posted online to attract buyers. Options transactions are often complex, and investors can rapidly lose the entire amount of their investment or more in a short period of time. Investors should consider their investment objectives and risks carefully before investing in options. Refer to the Characteristics and Risks of Standardized Options before considering any options transaction.

As the stock price increases, the margin requirement introduction also increases, which puts additional pressure even on short sellers with large money reserves. Executing the short sale begins by borrowing shares of a stock and then selling them on the market. Short sellers can then buy the shares at a lower price to give back what they borrowed, and making a profit in the process. A meme stock is an actual stock that represents a share of a company. Buying a stock in a company gives you fractional ownership of the company.

Options Trading Strategies For Beginners

what is meme stock mean

The exact reasons for why meme stocks are again on the rise in 2024 are hard to pinpoint. When the initial frenzy began in 2020 and 2021, people were largely at home due to the pandemic and had extra money due to government programs or just increased savings. In 2023, the movie Dumb Money told the story of Gill and his earlier meme-stock journey. However, if holding on to your hard-earned cash through long-term investments is what you have in mind, then it is probably best to steer clear of meme stocks, many financial advisors have told me. Commission-free trading refers to $0 commissions charged on trades of US listed registered securities placed during the US Markets Regular Trading Hours in self-directed brokerage accounts offered by Public Investing. Keep in mind that other fees such as regulatory fees, Premium subscription fees, commissions on trades during extended trading hours, wire transfer fees, and paper statement fees may apply to your brokerage account.

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. Hedge funds are types of investments that pool money together from wealthy investors, and short selling is when you borrow shares from a broker and immediately sell them with the hope that the stock price will fall. If it does, you can repurchase the shares at the lower price, return them to the brokerage and keep the difference as profit.

In general, as a meme stock becomes more popular, its value may increase. But the popularity may eventually decrease, resulting in a plummeting value. It was the gaming retailer GameStop (GME) that drew the most attention. The investment research and financial services firm Morningstar reported that meme stock investing was especially popular with younger investors who shunned traditional investing strategies. “In some cases, meme-stock investors saw opportunities to react against short sellers who were looking for a stock to decline.

These examples are programmatically compiled from various online sources to illustrate current usage of the word ‘meme stock.’ Any opinions expressed in the examples do not represent those of Merriam-Webster or its editors. FinanceBuzz writers and editors score products and companies on a number of objective features as well as our expert editorial assessment. Meme stocks typically benefit from social media attention, which may drive up the value of the stocks. Some regular stocks are popular because the companies they’re connected to are successful and well-known. But traders should keep in mind that even after their recent surge, GameStop shares are still down about 75 percent from their 2021 peak.

By closing two days later, the value doubled; an 8x increase from the price at the time of Cohen’s and Gill’s previous posts. New and individual investors may benefit from safer investment assets that are less volatile. Check out our list of the best investment apps to explore the assets each app offers and find a platform that provides the tools you need.

That’s why meme stocks are considered risky investments because their values can experience huge fluctuations over short periods of time. Without their cult followings, meme stocks are not necessarily valuable assets. These online communities, such as the popular Reddit forum WallStreetBets, coordinate buying and selling efforts to influence stock prices. With enough online support, meme stocks can maintain elevated stock algorand current price 1 25 usd prices regardless of the underlying company’s worth.

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