People would rather invest in stocks due to their high possibility of returns, which is undoubtedly greater than alternatives like gold, cds, real estate, and equity crowdfunding. Regardless of the market’s volatility, it is constantly on the attract a lot of investors.
Interestingly, social media affects the stock market in lots of ways, for example, creating investment hype. The best example is meme stocks, which became popular in 2023 when an investing app played a significant role in popularizing it on its platform.
There are a few popular websites where you can find out about meme stocks and receive valuable advice associated with purchase of various areas, including fine arts, which has high-profit potential. Now you ask ,, what exactly are these stocks, and what makes them called so? What are several things you must know about them?
Why could they be called meme shares?
They obtain unique and perhaps eccentric name from being popular on social media platforms. Traders share memes, initiate discussions, and share posts on platforms such as Reddit, to build hype and improve their prices in the share market.
However, despite the fact that their market prices witness an instant increase, it is almost always short-lived as they do not represent the company’s strength or value. Inevitably, the expense come to fall as quickly as they rise.
What is the stock cycle?
You will clearly understand their working mechanism through their stock cycle, which is mentioned briefly below.
Early adoption stage
A limited number of investors, usually short-term, identify stocks that they believe are undervalued and short on the public market by hedge funds and institutional traders.
Once they find out the share, the investors combined efforts to buy that in large numbers, increasing its overall value.
Middle stage
When the costs from the stocks increase, other traders, including those on Reddit and other platforms, come forward to buy them, thus increasing their total trading volume. This can lead to a dramatic rise in their prices.
FOMO stage
The fear of really missing out leads more investors to purchase the shares because the news of their increasing value circulates on forums and social media platforms.
Flash selling stage
It is when buyers start selling the meme shares simply because they have reached their highest value. Following them, more sellers start selling for anxiety about losing a profit-making opportunity, eventually resulting in an extreme fall in value.
How does the process work?
Investors purchase these kinds of shares to avoid institutional traders from being bearish on the company, that they do by betting large amounts of money against it. When institutions are bearish, they resort to short supplying profit from its decreasing price.
In short selling, an investor borrows a regular from a broker (from their inventory or brokerage firm) and then sells it, with the amount being a credit to their account.
The entire process carries a risk. Because the trader has resorted to shorting by borrowing the shares, they must pay for it by purchasing them and returning them to the broker. Most traders do that once the stock’s price is at its lowest, thus making a profit along the way.
But here's where meme buyers really make a difference by purchasing the shares in good sized quantities when they're in their lowest, thus increasing their prices, resulting in the hedge funds to suffer a loss while short-selling them.
Should you purchase them?
Even though these shares have a large amount of potential for profitability, additionally they have a certain amount of risk. The risk originates from the unpredictability they're susceptible to on the internet board discussions, message forums, and social media platforms.
Before investing, you should also know about the glossary of associated terms, including diamond hands, BTFD, apes, and paper hands.
You should thoroughly learn about meme stocks before choosing to invest in them, or better yet, seek professional advice from investors. However, it is interesting to understand how social networking can affect the working of shares and it is effect on the share market.
