Since 2012, we’ve seen an ongoing trend that many investors and traders are concerned about. It seems that the influence social media has on trading has increased greatly, affecting share prices in a number of ways. Most of the time social media’s influence has garnered negative impacts on affected markets though there have been occasions where benefits were gained.
(Photo credit to: eFinancialNews.com)
Understandably this was probably not Mark Zuckerburg’s or Jack Dorsey’s intentions as they began to create their innovative social media platforms. Regardless of the initial motivation, while Facebook may have a larger user base, the latter plays a much more significant role in the trading world. Recent developments have show actual proof of how effective a tweet can be from the right person.
With social media becoming more integral in our lives, what can we expect with market influence? Will this bullish ploy be infinitely valuable or will we see this phase end as a result of some catastrophic event?
Social Media Continues to Impact The Market
Call me a pessimist or a cynic, but so far social media’s involvement in the stock trading world has not always brought good tidings. Just look at last April when the news source Associated Press had their Twitter hacked, causing extreme drops in stock prices. This feat was accomplished with one mere tweet. It’s proven that the influence social media has on trading can be very harmful in a very small amount of time. With everyone connected to one form of social media or another, its almost as if this trend was inevitable. Look at the effect it’s had on the stock industry. There are now firms who that have set up shop who are only trading based on social media influences. That kind of trading can be dangerous especially with a large amount of capital to support it.
(Photo credit to: TeraMoney.com)
More recently the influence social media has on trading actually resulted in profits for those invested in the technology titans, Apple. How did Apple benefit from social media’s hand? A domino effect occurred from the time billionaire shareholder Carl Ichan posted a series of tweets regarding Apple currently being undervalued as well as a conversation he had with Apple’s CEO Tim Cook.
How Does Social Media Influence Stock Trades?
When looking at the bigger picture its easy to see how we’ve arrived at this juncture. As technology advances and we receive information at a faster rate, of course we are going to make more impulsive decisions. We’re reacting by the information we receive in that split second rather than looking at the larger spectrum. Former Reuters social media editor Anthony DeRosa explained it perfectly in somewhat ironic tweet. You can see below how this simple formula can result in both positive and negative manners.
(Photo Credit to: FastCompany.com)
What it comes down to is the fact that influencers have an unbelievable amount of power in the smartphones they carry. They can sway the masses, and the important individuals, the ones investing your money into believing or going along with various ploys. Take the tweet posted by Carl Ichan and Apple for example. Within minutes, Apple’s share price jumped from the opening price of $470.94 up to $493.
Twitter Analytics manager Miguel Rios posted this within minutes (Photo credit to: FastCompany.com)
As I write this, the age old mantra spoken by Ben Parker comes to mind. “With great power comes great responsibility.” Yes, I just quoted a comic book character. Regardless, the statement holds true. What will be the fate of the market as social media continues to influence pivotal trades? Will this become a normal occurrence or will something happen that will ban any type of stock or finance chatter from the digital grapevines?
How to Use Social Media to Your Advantage
For now, those with the “glass half full” mindset will undoubtedly take advantage of this new trend. To those brave individuals, heed my warning. Tread lightly and don’t throw your trading fundamentals out the window. Think about what the influencer posting these messages has to gain before acting. If it can benefit you, take advantage of it while you can. Once we begin to encounter huge losses by reacting to false information, this method of real-time trading will most likely come to an end. Of course, this is purely an opinion generated by past events and some logical thinking. There is, as always room for error.
Trading Influenced By Social Media Wrap-Up
For now, we will continue to witness the influence social media has on trading as some profit while others lose. I’m definitely curious to see how key influencers in the trading industry will begin to utilize this technique and how it affects the Stock Market in both the short and long-term scheme of things. While whole hedge fund and broker agencies put all of their eggs in the social media baskets, I’ll stick to the good ol’ fashioned research taking social media’s opinions with a grain of salt.
What are your thoughts about social media’s involvement in trading? Do you base your trading decisions off of what influencers are posting?
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