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What is a meme stock? How does work a meme stock ?

With the growing interest in the stock market by new investors, the frenzy has created a new type of stock, the meme stock.

What Is A Meme Stock?

Meme stocks don't mean the internet's favourite meme from the weak is now trading on the stock market. Rather, stocks for companies themselves have gone viral online, causing investors to purchase them just for the meme. Meme stocks are getting more and more popular, and if you're an early adopter, you can stand to make some crazy returns, like with GameStop or AMC. But let's take a closer look to figure out what exactly a meme stock

Meme stocks are a fairly new term, and they spawned out of trading hype and hysteria from 2020 and 2021, with discussions of the stock originating on Reddit or other online forums. Meme stocks garnered and do garner so much attention simply because of how fast they rise for seemingly no reason.

Typically a good stock would rise 30 to 50% in a year, but a meme stock could make that move overnight. That kind of money gets people talking. Meme stocks can be any stock, whether the underlying company is good or bad. If the Internet starts to like it, thousands of retail or nonprofessional traders pile in, driving up the price.

Meme Stocks Incidence

Some recent examples of meme stocks are GameStop, AMC, and BlackBerry. The companies in question don't have great fundamentals or say that the companies really aren't that great at making a ton of money, but the Reddit channel Wall Street bets started talking about these stocks, specifically how much larger rich investors were shorting the stocks.

In simpler terms, this means that big investors were betting the stock price would go down. The Reddit boards and retail investors wanted to stick it to the man and make these big rich funds lose money. So they all bought the stock, causing prices to soar and those bets that the stock would go down to lose a ton of money. It used to be that you could make the most money making good companies. But now you can make millions just by picking the right bad company or meme stock. Because meme stocks are driven by online virality, they undergo some common cycles. 

What is a meme stock? How does work a meme stock ?

The Phase Of The Meme Stocks

There's an early adopter phase where investors think the stock is undervalued or over shorted and start buying the stock. Then there's a middle phase where people who pay attention to finance media start realizing there may be something happening and start buying. These two phases in the beginning are where investors can make the most of any money following these first phases. There's the FOMO phase, where people like your grandmother and weird uncle here that GameStop is going to the moon and start buying in. Generally, by this time, it's too late to make a ton of money, but the meme hype train keeps rolling. After the stock has gone up to crazy levels, those early investors start taking profit or selling the stock, and the stock price starts going down on less purchasing demand.

How Does Work A Meme Stock?

The whole cycle can happen in just a few days or weeks. Meme stocks go to the moon and back at breakneck speeds. For example, GameStop, often regarded as the first official meme stock, first began to surge in January of 2021. The stock went from 17.25 to $147 per stock in a matter of weeks. By January 27th, the stock had risen to $347 per share, and by January 28th the stock had hit its high of $483 before closing the day at 193. That volatile price action wasn't because the company was good. 

Rather, the price change was driven by thousands of people wanting to get in on the frenzy. All of this volatility and craziness has driven increased interest in retail trading or just ordinary people not working for a bank trading stocks. Investing in mean stocks can be a fun whirlwind and roller coaster to the moon, I'm going to be rich quickly turning to how will I pay next month's rent if I don't sell at the right time. One thing is for sure though, trading meme stocks, if timed and done right, can transform a little bit of cash into thousands or millions in just a few days. Just be prepared to lose all of your investment if you play the game.



 

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