There is also collaborative element to the online chatter that drives meme stocks, and a community found in joint narratives built around potential meme stocks. As internet chatrooms have abounded and market watchers found a place to share ideas and build a plan of action, “meme stocks” were born. Any estimates based on past performance do not a guarantee future performance, and prior to making any investment you should discuss your specific investment needs or seek advice from a qualified professional. For those who choose to invest in meme stocks, its a valid question to ask. While sentiment is part of the equation, its not the only consideration. When large amounts of retail investors band together, the upswings can be dramatic.

The Role Of Social Media And The Hype Cycle

Taking any particular advice as scripture comes with its own set of risks. This is why getting investment advice from social media can be a risky practice. This is well reflected in how experts rate TikTok personal finance advice, which can be hit or miss. Meme stocks are popular in part because they can result in a big win over a short period of time. Buying up cheap shares to have them skyrocket in price results in a large payout. In the case of GameStop (GME) members of “r/wallstreetbets” bought up shares with fervor, knowing hedge fund managers counted on it as a shorted stock, eventually driving up the price from $2.75 per share to $500 a share.

Investing communities on Reddit (specifically the WallStreetBets, or WSB, subreddit) believed the stocks of GameStop and a few other companies were undervalued. They brought a lot of attention to these stocks and began buying them on low-fee investment apps such as Robinhood. The meme stock trend essentially began with GameStop in 2021, a video game retail company that had been popular years before. Meme stocks may also be stocks that many investors are short selling, which means these investors are betting the stocks in question will drop in value. Although meme stocks might sound simple, there is more to how they work and why they’re generally considered riskier than your average stock.

Why are meme stocks popular?

Since meme-stock trading doesn’t require studying how a french solo trader made a $6 6 billion unauthorized bet a company or relying on the metrics of earnings, profitability and growth, you could potentially lose your whole investment, as meme stocks and their trading volumes are highly volatile. 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. Within a couple weeks, social media users flocked to the Wall Street Bets forum to join the conversation and participate in the hype.

Market data is provided solely for informational and/or educational purposes only. It is not intended as a recommendation and does not represent a solicitation or an offer to buy or sell any particular security. Just as much as there can be highs during times of high demand, so too can there be lows amid mass exoduses. Many meme stocks are popularized because theyre heavily shorted, which can play into the stocks performance as well. One peak does not necessarily mean there will be more, but its possible.

Terms connected to meme stocks

Alternative Assets.Brokerage services for alternative assets available on Public are offered by Dalmore Group, LLC (“Dalmore”), member of FINRA & SIPC. “Alternative assets,” as the term is used at Public, are equity securities that have been issued pursuant to Regulation A of the Securities Act of 1933 (as amended) (“Regulation A”). These investments are speculative, involve substantial risks (including illiquidity and loss of principal), and are not FDIC or SIPC insured. Alternative Assets purchased on the Public platform are not held in a Public Investing brokerage account and are self-custodied by the purchaser. The issuers of these securities may be an affiliate of Public Investing, and Public Investing (or an affiliate) may earn fees when you purchase or sell Alternative Assets.

Do you have to pay taxes on meme stocks?

This material is not intended as a recommendation, offer, or solicitation to purchase or sell securities, open a brokerage account, or engage in any investment strategy. All investments involve the risk of loss and the past performance of a security or a financial product does not guarantee future results or returns. This material is not intended as a recommendation, offer, or solicitation to purchase or sell securities, open a brokerage account, or engage in any investment strategy.Product offerings and availability vary based on jurisdiction. Though some believe meme stock communities coordinate efforts to influence the prices of those shares, meme stock shareholders are often an unorganized set of independent individuals, each with their own investment views and preferences. Collectively, their independent actions have been shown to initiate short squeezes in heavily shorted names.

At the height of meme stock frenzy, Robinhood—the upstart brokerage that, a few years earlier, led the charge on zero-commission stock trading—and other major brokerages throttled trading of several major meme stocks. The financial institutions cited the need to meet financial requirements imposed by stock clearinghouses. Investors were outraged, sparking discussions about the fairness and transparency Us currency trading of the stock market. Some of the more popular meme stocks, such as GameStop, continue to enjoy higher stock prices than before the short squeezes in 2021. Others, such as AMC, are now even lower than their pre-pandemic values. 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).

This is not an offer, solicitation of an offer, or advice to buy or sell securities or open a brokerage account in any jurisdiction where Public Investing is not registered. Securities products offered by Public Investing are not FDIC insured. Apex Clearing Corporation, our clearing firm, has additional insurance coverage in excess of the regular SIPC limits. In late 2021, Roundhill Investments launched the Roundhill Meme Stock ETF.

Risks of investing in meme stocks

1. Securities and Exchange Commission (SEC) and other financial watchdogs started closely observing how meme stocks were being traded.
2. As internet chatrooms have abounded and market watchers found a place to share ideas and build a plan of action, “meme stocks” were born.
3. Other meme-stock companies from the first wave were AMC (AMC), BlackBerry (BB) and Bed, Bath and Beyond.
4. Buying a stock in a company gives you fractional ownership of the company.
5. For TIME, she profiled Jimmy Carter, Toni Morrison and Francis Ford Coppola about turning points in their lives.

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. If you’re thinking about buying and selling meme stocks, keep in mind that you will probably have to pay taxes on your profits. Capital gains tax rates are especially high on stocks you held for less than a year.

Plans involve continuous investments, regardless of market conditions. See our Investment Plans Terms and Conditions and Sponsored Content and Conflicts of Interest Disclosure. Oftentimes, supply chain and logistics technology meme stocks boil down to a particular influencer (like RoaringKitty on YouTube, who spearheaded the GME movement) or community (like the previously mentioned WallStreetBets).

For public companies, much of their value comes from market capitalization. Shares are worth what people are willing to pay for them (aka market value). GameStop followed suit in 2021, raising nearly $1.7 billion via a secondary offering of 8.5 million additional shares at an average price of more than $200 per share.

Presently, she is the senior investing editor at Bankrate, leading the team’s coverage of all things investments and retirement. Michelle Lodge is a journalist who has written extensively about finance, personal finance, topics of critical importance to business owners, iconic and everyday Americans, book reviewing, travel and health. For TIME, she profiled Jimmy Carter, Toni Morrison and Francis Ford Coppola about turning points in their lives. For the Harvard Business Review Analytic Services, Lodge covered gender discrimination in the financial services industry. For Investopedia, she reviewed the best finance books of the year, and for the British Medical Journal, she traveled to South Sudan to cover Guinea-worm eradication efforts spearheaded by the Carter Center. “Meme stocks appeal to our fear of missing out (FOMO) and our desire to get rich quickly.