What is Meme Stock? Explain one of the hottest trends on Wall Street

Spark Global Limited Reports:

There’s a new buzzword: Meme stock.

Recently, some stocks caught the attention of WallStreet, regulators and members of congress, with a group of amateur traders teaming up on a Reddit forum called “WallStreetBets” to squeeze big-money short sellers.

For example, we recently saw the stock of GameStop(NYSE :GME), a struggling video game retailer chain, go through wild swings as members of the subreddit rallied against hedge funds taking short positions in the stock.

The backlash from professional short sellers such as Melvin Capital and Citron Research has been a key rallying point for traders using forums to discuss their trades. Short sellers have long been labeled unethical because they profit when most people are losing money (ie, when stock prices fall).

So what is a meme stock? Why have traders been queuing up to follow this trend?

What is Meme Stock?
Meme stock is trading slang for a large number of short stocks that can be manipulated to prove a point.

Such stocks are frequently mentioned on social media platforms, online forums and news articles. They are popular with young traders, volatile and their value is based on potential rather than financials.

In general, these stocks are overpriced, all because of market speculation, causing huge changes in their valuations and peaks of rapid volatility in a short period of time.

However, that’s not to say that meme stocks are bad stocks.

In fact, most stocks have good fundamentals, but sometimes they are overvalued, and some traders tend to panic sell when prices fall for fear of missing out when they rise.

How did the meme stock catch on
GameStop, AMC Entertainment Holdings(NYSE :AMC), and Koss(NASDAQ :Koss) are some of the most popular emoji stocks simply because their prices have soared ridiculously.

But they are not far behind Kodak and Hertz. Despite their struggling businesses, both companies saw their stock prices soar when they became Reddit darlings in 2020.

For example, here’s what happened after GameStop soared due to the Reddit trader’s Gamma squeeze:

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