What Are Meme Stocks?

The term came into prominence during the pandemic-era market rallies, when stocks like GameStop and AMC soared after going viral on online trading communities.

• Meme stocks generally attract interest from retail traders on social media platforms and forums.
• Short squeezes can lie at the center of many meme-stock rallies; if a heavily shorted stock starts to climb, short sellers may be forced to cover their positions.
• Meme stocks are known for extreme volatility, with prices that can surge multiple times in just days and collapse just as quickly once sentiment fades.

A meme stock pertains to a publicly traded company whose stock price is driven mainly by internet hype and retail investor sentiment rather than by economic fundamentals such as earnings growth, valuation metrics, or balance-sheet strength.

The term came into prominence during the pandemic-era market rallies, when stocks like GameStop and AMC soared after going viral on online trading communities. Media outlets have consistently described meme-stock movements as sentiment-driven trades, fueled by digital investor coordination rather than corporate performance.

How Do Meme Stocks Work?

Meme stocks generally draw interest on social media platforms and forums from retail traders, who focus on a single ticker. These stocks see sharp price jumps and unusually high trading volumes amid intense discussions by retail traders.

In any case, when momentum builds, price action itself becomes the leading driver, attracting more traders, regardless of the fundamentals.

Why Do Meme Stocks Rise So Fast?

Meme stocks could surge rapidly due to crowd psychology and market mechanics. 
Short squeezes can also be at the center of many meme stock rallies. If a heavily shorted stock starts to climb, bearish investors may be forced to square off their positions, adding upward pressure on the stock and accelerating gains.

Risks And Volatility Of Meme Stocks

Meme stocks are known for extreme volatility. Prices can surge multiple times in just days and can collapse just as quickly once sentiment fades. Late entrants often face steep losses when momentum reverses.

Meme Stocks vs Traditional Investing

Traditional investing relies on long-term fundamentals such as revenue growth, profitability, competitive advantage, and economic outlook. Meme stock trading is short-term and primarily narrative-driven, as prices respond more to online buzz rather than financial results.

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