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

Retail traders are diving back into some of the market’s most speculative corners, with a regulatory shift removing barriers to rapid-fire trading and helping revive the kind of meme-stock frenzy that has historically delivered sharp gains, and even sharper reversals.

April’s rally in risk assets, fueled in part by an Iran ceasefire, has emboldened individual investors to pile back into volatile trades. In one of the more striking examples, retail traders stampeded into Allbirds after the troubled shoemaker slapped an artificial intelligence label on its business.

Shares surged to as high as $24 from roughly $2.50 after the company outlined plans to rebrand as NewBird AI and pivot toward compute infrastructure. Much of that advance has already unraveled, with the stock recently changing hands near $8 — a sharp reversal that underscores the volatility of such trades.

A similarly dramatic move led by smaller traders played out in Avis Budget Group. Shares of the company, ticker “CAR,” soared from under $100 last month to a record high near $850 in early trading Wednesday, before staging a sharp intraday U-turn lower, serving as another reminder of how quickly momentum-driven rallies can unwind.

Analysts at JPMorgan said crowding in so-called meme stocks has surged, approaching levels just shy of the extremes seen during the post-Liberation Day risk chase.

The Wall Street firm noted that a key catalyst may be a recent rule change by the U.S. Securities and Exchange Commission. Earlier this month, the regulator approved a proposal by FINRA to eliminate the so-called pattern day trader rule. Under the rule, traders who executed four or more day trades within five business days had to maintain a minimum equity of $25,000 in a margin account.

The new rule, which goes into effect on June 4, does away with the $25,000 requirement, replacing it with a more flexible “intraday margin” rule. FINRA called the old rule, hatched in the wake of the Dotcom crash “outdated.”

“This change opens the door for more investors with smaller accounts to trade more actively, while still keeping protections in place through modern margin and risk controls,” Adam Cohn, head of trading operations at TradeStation, told CNBC. “Removing that barrier means more people can participate in short-term trading strategies … We’ll see a more open market with broader participation and more liquidity.”

JPMorgan analysts said the shift could drive a further pick-up in retail volumes in the coming months, reinforcing momentum in already crowded trades.