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Are Meme Stocks Dying or Will History Repeat?

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The stock meme phenomenon has engulfed finance in a turbulent way, generating expectations, doubts and fears. From the sensational initial surge to the collapse, a wavering trend that has given rise to various fears. But what happens today, will they disappear or return to altitude? Let’s try to understand what the future of these shares that are dear to many investors can be.

How they were born and the meaning of meme stock

We are in summer 2020, during the Covid19 pandemic, when the so-called meme stocks unofficially enter the financial markets. Many people were stuck at home and found ways to turn free time into money by turning to the stock market and social networks for ideas.

Meme is a word originating from ancient Greece, mimema, which meant an imitation that spread rapidly. Today it is identified as an idea or a behavior that propagates itself within a pop or social culture.

The glorious debut came when US video game retailer GameStop saw its value rise by more than $ 10 billion in a single day. The following day, as several trading platforms temporarily imposed restrictions on the stock, the shares fell 44%, but then rose again the next day.

Not only has there been a wave of new investors growing online, but there has also been the ease of trading stocks on new apps like Robinhood Markets. Reasons why meme actions have become a viral movement.

What are stock memes? The definition of the new phenomenon

Stock memes can be defined as shares of companies with shaky economic prospects that suddenly begin to climb the slope, due to an interest on the web or in social networks, thanks to the coordinated intervention of groups of online traders. They usually represent small businesses that may be subject to greater price changes from the action of an investor community. The main social network used by these subjects is Reddit, which is a social network and a forum at the same time.

These are usually brands many times present in shopping centers such as AMC Entertainment (AMC), GME, Palantir, Virgin Galactic and Bed, Bath & Beyond (BBBY), or technology products famous in the past such as Nokia (NOK) and Blackberry (BB ).

This phenomenon has somewhat countered, creating significant losses, for those professional investors such as hedge funds who traded short on stocks. These were forced, as a result of the rapid rise in prices, to cover themselves, thus making the share prices rise more.

A head-on challenge was therefore launched against institutional investors, with a strategy that took advantage of the ever-growing online communities and new investment tools, focusing on smaller and troubled companies.

From miraculous beginnings to threatening dangers

The world of trading has now inexorably changed, it is now accessible to everyone, with inevitable implications.

Short-term stock prices are unpredictable as they are dictated by supply and demand and can also lead to rapid losses. These sudden spikes can in fact reverse course just as quickly, making meme actions much more volatile than traditional actions.

It is therefore easy to “pierce” the markets, because we are often freed from the usual dynamics of investments, as we are at the mercy of the permeability of social and technological phenomena. The reins are held on the basis of the decisions of a few, which can therefore compromise the stability and transparency of the market itself.

In fact, today there are still memes that wobble and others that shoot up and hold strength. Let’s see the example of BBBY shares in recent days:

Is the future bright or funereal?

Is the democratization of financial trading just a good story that has come to an end? Not really. The SEC itself, worried, has begun to study measures to unravel the chaos generated by the advent of meme stocks. And the experts question themselves.

Maxim Manturov, head of investment research at Freedom Finance Europe, says: “With the Securities and Exchange Commission evaluating new rules for stock trading apps, following the frenzy of GameStop and other stock memes earlier this year. A cooling of the trend in general cannot be ruled out.The report indicates that the SEC may continue to scrutinize, with developments that would force the brokerage firm to restrict trading in shares.

Furthermore – continues Manturov – the SEC plans to regulate the PFOF and eliminate the “gamification” of trading, as many brokerage firms actively sell user order information to the larger trading companies that execute these transactions, known as “pay per order flow.” “.”

That the stock meme bubble was destined to burst was predictable, because they substantially inflate the capitalizations of some companies without them having real coverage, but this does not mean that we are talking about an end of the line. Indeed, as well as being on the upswing again, for some people investing in these stocks can still make a lot of sense.

It is certainly not easy to navigate in such a complex and unprecedented system, but a good strategy technique is to keep knowledge alive and active.

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