# Meme stocks Meme stocks is a term for shares that attract intense online attention and coordinated-looking trading interest, often accompanied by unusually volatile prices and trading volumes. ## What it means The label describes a pattern of market attention, not a formal type of security. A stock may become a meme stock when social-media posts, online communities and rapidly shared narratives draw unusually strong interest from traders. The attention can change quickly, and people using the label may disagree about which stocks qualify. Online enthusiasm is not the same as evidence about a company's earnings or valuation. Nor does heavy discussion prove that traders are acting together. A meme stock remains an ordinary share subject to its exchange's trading rules, although its trading conditions may be unusually difficult to assess during an attention surge. ## How it is calculated There is **no standard formula or official threshold** for identifying a meme stock. Measures such as trading volume, daily price changes and the bid-ask spread can help describe what is happening, but none establishes the label on its own. One useful measure is relative trading volume: `relative volume = today's shares traded / average daily shares traded`. - **Today's shares traded** is the number of shares exchanged during the trading day, in shares. For an unfinished day, comparing its partial volume with a full-day average can mislead. - **Average daily shares traded** is the mean daily volume over a stated comparison period, also in shares. - **Relative volume** has no units: it is a multiple of the average. A value of 4 means four times the comparison-period average, not a 4% increase. Relative volume can be high for many reasons, including company news. It does not measure online attention, explain why anyone traded or predict the next price move. ## Worked example Consider a **hypothetical** stock that normally trades 1 million shares per full day. After widespread online discussion, it trades 4 million shares in one full day. 1. Relative volume is `4,000,000 / 1,000,000 = 4`, or four times its usual daily volume. 2. Suppose its displayed bid is US$20.00 and its displayed ask is US$20.20. The quoted spread is `US$20.20 - US$20.00 = US$0.20` per share. 3. At those displayed quotes, buying 100 shares at the ask would cost US$2,020. Immediately selling 100 shares at the bid would bring US$2,000: a US$20 difference before commissions or other costs. The spread calculation illustrates a possible cost of crossing the quotes, **not** an assured fill or a forecast. Quotes can change before an order arrives, displayed shares may be insufficient, and a larger order may affect the price. The fourfold volume increase alone cannot establish that this is a meme stock. ## Why it matters before you trade A surge of attention can coincide with fast price changes and rapidly changing quotes. A pre-trade check should distinguish the price visible when an order is prepared from the price at which it might actually fill. The bid-ask spread, available liquidity, order size and participation in daily volume all matter to potential execution costs. The order type and execution conditions matter too: a market order prioritizes execution over a specified price, while a limit order sets a price boundary but may not fill. Trading halts can temporarily prevent execution. In a basket, a volatile line can also increase concentration or change the basket's risk profile. These considerations apply whether online discussion is positive, negative or mixed. ## How PreTrAIde uses it PreTrAIde does not list a dedicated meme-stock classification or an online-post activity measure among its product facts. Its **pre-trade analysis** instead examines the proposed stock basket using market data, recent news per ticker and analyst ratings. Its quantitative layer estimates spread, participation in daily volume, market impact and daily volatility, and assesses liquidity and risk. For each line and the basket, PreTrAIde returns a GO, NO-GO or MODIFY verdict, a model-estimated success probability, a risk assessment, a suggested execution strategy and plain-language reasoning. Those verdicts support a decision; they are not recommendations. PreTrAIde does not place orders, and its success probability is neither a guarantee nor a forecast of returns. ## Common mistakes - **Treating the label as a valuation:** Online popularity says little by itself about earnings, cash flow or what a company is worth. - **Confusing volume with liquidity:** Heavy trading does not guarantee a narrow spread or enough shares at the displayed price for a particular order. - **Assuming a past quote is executable:** A screenshot or last-traded price may differ from current bid and ask quotes and from a real fill. - **Assuming all price moves share one cause:** News, short-selling dynamics and broader market conditions can matter alongside online discussion. - **Treating a risk estimate as certainty:** Historical volatility and model outputs cannot rule out an abrupt move, halt or unexpected execution cost. --- Source: https://pretraide.com/glossary/meme-stocks