The regulator cautioned that traders joining the Reddit crowd in ploughing their money into these stocks could even fall foul of rules on market abuse
Traders have been warned they could be guilty of market abuse amid a trading frenzy which has pitted ordinary investors against Wall Street.
UK investors should be wary of 'highly volatile market conditions', the Financial Conduct Authority (FCA) said, after users on social media site Reddit began pumping up the price of certain stocks to get back at hedge funds and other short-sellers.
The FCA cautioned that traders joining the Reddit crowd in ploughing their money into these stocks could even fall foul of rules on market abuse – if they were found to have artificially inflated the price of a stock.
While the phenomenon started in the US with a little-known video game retailer called Gamestop, it quickly spread to the UK.
Heavily shorted companies including Pearson, Cineworld and Hammerson all saw sharp spikes in their share prices this week for no discernible reason.
American Airlines was mentioned on the Reddit thread yesterday, causing its shares to jump as much as 30 per cent at one point. This set off a chain of speculative trading among UK-listed airlines.
Easyjet climbed 4.6 per cent despite a dire trading update, while Wizz Air was up 4.7 per cent after posting hefty losses and British Airways-owner IAG jumped 4.8 per cent.
A spokesman for the City watchdog said: UK investors should take care when trading shares in highly volatile market conditions that they fully understand the risks they are taking. Firms and individuals should also ensure they are familiar with, and abiding by, all regulations including the market abuse and short-selling regimes in the jurisdiction they are trading in.