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2021: The year when memes humbled hedge funds

From 4 Jan to 27 Jan alone, GameStop surged 1,900%, however, a string of trading platforms, including Robinhood, eventually stopped users from investing for a short time after a spike in volatility. Photo: Nick Zieminski/Reuters

The coronavirus pandemic has brought a new generation of investors to the stock market, with rising interest in cryptocurrencies, non-fungible tokens (NFTs), ethical investing, and more recently the metaverse.

Another area that proved popular with new retail traders in 2021 was “meme stocks”, as social-media-fuelled trading led to wild swings in the market. 

Earlier this year GameStop (GME) and AMC (AMC), among others, saw a dramatic surge in value as Wall Street short-sellers and reddit WallStreetBets users clashed, causing a short squeeze on the stock.

A short squeeze forces those who bet against the stock to buy in order to forestall bigger losses, sending the stock price much higher.

This left Wall Street institutions such as hedge fund Melvin Capital, sitting on billions of dollars in losses, highlighting the new power and weight of retail investors in the market. 

The New York-based investment management firm closed out of its GameStop short position on 27 January, ending month with $8bn (£6bn) in assets under management, compared to the $12.5bn it started the year with.

Interest in meme stocks continued to rise thanks to the fear of missing out, or FOMO, driven by traders sharing their returns on social media and touting the stock.

Watch: YouTube star trader Matt Kohrs: Wall Street 'permanently changed' by meme stocks and retail trading

From 4 Jan to 27 Jan alone, GameStop surged 1,900%, however, a string of trading platforms, including Robinhood, eventually stopped users from investing for a short time after a spike in volatility.

The buying ban sparked a furious backlash on social media platforms as it left them no choice but to either hold their position or sell. Mea...

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