At the end of January 2021, GameStop dominated the news as the hedge fund, Citadel Securities, wanted to sell GameStop shares short. Citadel Securities has been lending shares of GameStop (NYSE: GME) and tried to sell them while they waited for these shares to decline in value.

Afterward, the company intended to buy the shares down in value. However, there were Reddit users who noticed the intentions of Citadel Securities and bought shares of GameStop.

The lawsuit caused GameStop’s stock to rise, and Citadel Securities lost trillions of dollars. The event was investigated and the Securities and Exchange Commission (CBV) wrote a 44-page report.

Why Experts Wait Gingerly

The ‘meme stocks’ are named that way because they are actions that become popular thanks to the internet. The hunger for hot stocks usually causes the value of stocks to skyrocket, resulting in a buying and selling frenzy.

The value of these shares is usually determined by the amount of virality they obtain online, and not necessarily by the traditional criteria that add value to the shares, such as:

• The performance of the company
• An initial public offering launch
• An economy that is growing or improving
• An innovation that adds value to the shares and / or the company
• Political stability

How to recognize meme stocks

Stock meme usually have the following characteristics:

• They do not usually have bad intentions. Online communities that promote this phenomenon often share their strategies on forums like Reddit.
• They are relatively new, and GameStop is considered the first stock meme in the history of this type of action.
• Users who promote stock meme tend to keep their shares even after they go up in value.

What are we currently seeing?

It is still possible to buy GameStop stock, and thanks to online forums like Reddit, this trend is likely to continue.

Maxim Manturov, Head of Investment Research at Freedom Finance Europe says,
“As the Securities and Exchange Commission is thinking of some rules for securities applications after the hysteria with GameStop and other ‘meme stocks’ at the beginning of the year, a cooling trend generally cannot be ruled out. The report indicates that the CBV will likely continue to investigate developments that could force brokerage agencies to restrict the trading of shares. In addition, the CBV plans to regulate payment per order flow and eliminate “gamification” of buying and selling of stocks. actions, as many brokerage agencies sell user information to the larger brokerage agencies that execute the transactions, known as ‘pay per order flow.’ ”

More regulation and protocols

Communities that are dedicated to viralizing certain actions adapt quickly to changes and are always in search of new investments. They even have emojis and other jargon that they use to influence their communities.

The CBV recommends more regulation on stocks that suddenly rise in value. Apps like Robinhood allowed newbies to sell GameStop shares, and then stopped selling these shares.

This caused a furor among new investors who bought GameStop shares despite possible interference from more experienced funds trying to sell short.

Reviews and issues for stock buying and selling apps

Robinhood was criticized for not allowing the buying and selling of GameStop shares after the shares returned to a stock meme. One of the justifications presented by the company was that it had to keep an amount of money to ensure that all purchases and sales of shares are carried out before continuing to sell GME shares.

The company also stressed that the volume of purchase and sale was so high that it had to deal with costs of up to 3 billion, although its capital at that time was 2 billion.

Scandals

After what happened, many Robinhood users complained that the app’s stock favors the Wall Street big boys, while restricting the movements of small or new investors.

In conclusion

All types of investment carry risk and meme stock must be handled with care. What happened with GameStop did help the public to talk about new trends in the stock markets and gave us an economic lesson in real time.