What Are Meme Stocks? We Explain Here

Meme stock craze, which began at the height of the coronavirus outbreak, has beaten institutional investors by organising retail day traders on social media to boost the price of businesses that Wall Street is betting against.

The stock price of struggling video game retailer GameStop was rocketed by this new breed of traders, who congregated on websites like Reddit’s well-known WallStreetBets forum and used commission-free trading applications like Robinhood.

By the end of January 2021, shares had risen from $3 in 2020 to over $300, triggering historic market volatility and significant losses for hedge funds that shorted stocks.

Borrowing a stock through a broker in the hopes that the price would fall is known as short selling. When it happens, the buyer returns it and makes money on the price differential between the first and second, lower prices.

It relies on the timing of what you bought and sold, just like with any investment. Individual investors made significant profits in GameStop, but those who currently own it would be making a loss.

Describe A Meme Stock

A stock that gains popularity among individual investors as a result of social media is known as a meme stock.

On a social media platform like WallStreetBets, a group of day traders choose a company and work together with members of their online community to buy shares to raise its price with the objective of selling it before it declines.

Typically, they go for businesses that Wall Street has gambled against. Typically, the success of the company has minimal bearing on the increase in stock price.

Disruptive Trading App Achieves USD 7 Billion Valuation

Business valuation is a process and a set of procedures used to estimate the economic value of an owner’s interest in a business. Here various valuation techniques are used by financial market participants to determine the price they are willing to pay or receive to effect a sale of the business.

Robinhood, the operator of a free mobile trading app, is close to garnering a valuation of $7 billion or more.

Citing two people familiar with the deal, reported Robinhood has raised a minimum of $200 million in a recent late-stage fundraising round that will give it a valuation of between $7 billion and $8 billion. The round, which includes mainly existing investors, hasn’t closed yet — which means it could raise more than $200 million. When Robinhood raised money via a Series D round it had a valuation of $5.6 billion, noted CNBC. Robinhood declined to comment on its valuation.

Robinhood’s co-CEOs Baiju Bhatt and Vlad Tenev have said an initial public offering is in the cards at some point — but that currently, it is focused on disrupting other areas of finance. This year it applied for a national bank charter from the Office of the Comptroller of the Currency.

A spokesman told CNBC in April that getting the national bank charter will enable it to offer banking products. “Robinhood’s goal is to be able to offer its customers a full suite of financial products to serve their needs,” the spokesman said.

Robinhood brought on the CEO of Wedbush Bank and Merchants Bank of California, Scott Racusin, to head up its banking efforts. Racusin was eventually named the president and CEO of the potential bank. Robinhood was forced to retreat from offering a bank account after announcing in late 2018 a checking and savings product with 3 percent interest. Backlash quickly surfaced as to how the money would be insured and if it would be protected like a bank account that has the backing of the Federal Deposit Insurance Corp.

Robinhood removed all its marketing material and now calls it a cash management feature offered within its brokerage accounts.

Robinhood has been enjoying fast-paced growth thanks in large part to the fact that its stock trading app is free. In 2018 its user base jumped from 4 million during the summer to 6 million by late 2018.

Disruptive Trading App Set to Fundraise Over USD 200 Million

The Robinhood trading app pursuing an equity fundraise means that, in exchange for the money invested now, investors will receive a stake in the company and its performance moving forward.

United States-based stock and crypto trading app Robinhood is set to raise at least $200 million in a new funding round, Bloomberg reported on May 24.

Robinhood is an American financial services company headquartered in Menlo Park, California, known for pioneering commission-free trades of stocks, exchange-traded funds and cryptocurrencies via a mobile app introduced in March 2015.

Per the report, an unspecified source familiar with the matter told the outlet about the company’s plans to raise further funding. Moreover, Bloomberg reports that the round would increase the firm’s value to between $7 billion and $8 billion, but that the details could change.

Other people familiar with the matter also told Bloomberg that the new funds come from existing investors, all of whom asked not to be identified and to keep the details private. While the funding talks are reportedly ongoing, a further funding round could increase the company’s worth to $10 billion, but the numbers are subject to change until the deal is closed.

Robinhood, which allows for zero-fee stock trading, first introduced bitcoin (BTC) and ether (ETH) trading in January last year.

As Cointelegraph reported earlier this week, Robinhood has officially launched its crypto trading app in New York following the acquisition of a BitLicense by the New York State Department of Financial Services in January 2019.

Also during this week, the new April 2019 Exchange Review from crypto data provider Cryptocompare revealed that centralised cryptocurrency exchanges saw a major uptick in trade volume this April.