Risky meme trading is back. A trading rule change may have lit the fuse

Retail traders are once again flocking to the market’s riskiest corners, as a recent regulatory change has removed barriers to rapid-fire trading and reignited the meme-stock frenzy that can lead to sharp gains and losses. The rally in risk assets in April, partly fueled by an Iran ceasefire, has emboldened individual investors to return to volatile trades. One notable example is the surge in Allbirds stock after the company announced plans to rebrand as NewBird AI and pivot towards compute infrastructure. The stock rose to $24 from $2.50 before retracing back to $8, highlighting the extreme volatility of such trades.

Similarly, smaller traders led a dramatic surge in Avis Budget Group stock, which soared to a record high near $850 before sharply reversing lower. This serves as a reminder of how quickly momentum-driven rallies can unravel. Analysts at JPMorgan noted that crowding in meme stocks has surged, approaching levels seen during the post-Liberation Day risk chase. This increase in retail trading activity may be attributed to a recent rule change by the U.S. Securities and Exchange Commission, eliminating the pattern day trader rule in favor of a more flexible intraday margin rule.

The removal of the $25,000 equity requirement for day traders is expected to attract more investors with smaller accounts to engage in active trading strategies. Adam Cohn, head of trading operations at TradeStation, believes that this change will lead to a more open market with broader participation and increased liquidity. JPMorgan analysts predict that the regulatory shift could drive a further increase in retail trading volumes, reinforcing momentum in already crowded trades.

In conclusion, the recent regulatory change has reignited retail traders’ interest in speculative stocks, leading to volatile price swings in companies like Allbirds and Avis Budget Group. The shift towards more active trading strategies could potentially reshape the dynamics of the market, with increased retail participation and liquidity. As investors navigate through these turbulent times, it is essential to stay informed and adapt to the evolving market conditions.