Social media has transformed the trading landscape in the last two decades.
It has made trading attainable for more investors, and in turn has allowed trading companies to reach a wider audience.
This has had both positive and negative consequences for investors and businesses alike. See how social media is impacting trading in the 21st century and how you can use it to your advantage.
Once seen as an activity for the privileged few, social media has brought trading to the masses. Online discussion has given people a greater understanding of how trading works, and the confidence to investigate investment as a means of bolstering their personal finances.
Alongside this, online trading platforms and trading apps make it much easier to manage investment portfolios. Investors have instant access and full control of their portfolio from anywhere in the world via their mobile phone.
Traders can also use social media to find would-be investors, expanding their audience and using this platform to promote their brand and new opportunities. Having social media accounts also enables traders to analyse consumer data and optimise their offerings.
Books and websites offering financial advice are widespread, but are often full of off-putting jargon. In contrast, social media disseminates information in clear and concise bitesize chunks such as graphics and reels, with an algorithm that personalised content to the user.
This easily digestible format has made social media a popular tool for offering and finding simple investment advice.
Traders can provide information on stocks and shares and the latest market trends, alongside guidance for first-time investors. Those new to trading can also improve their financial knowledge and get a sense of general consensus by browsing user content in the online trading community.
However, while social media is a great place to gather knowledge, users should be aware of unverified influencers. There are so many accounts offering personal finance advice that they have been given their own name – ‘finfluencers’.
Most ‘finfluencers’ provide money-saving advice based on their own historic life experiences. This might seem innocent enough, but it can encourage users to try tactics that don’t work for them or the current climate.
This is especially true when it comes to trading and other higher-risk investment opportunities which require a certain amount of financial literacy. These influencers can – knowingly or unknowingly – give biased trading advice which encourages ill-informed investment decisions.
The UK’s Financial Conduct Authority has warned social media platforms that action will be taken if risky investments and unverified stock tips continue to be promoted by ‘finfluencers’.
Social media has the power to create hype in an instant, and the ability to erase it just as quickly. Every month sees another host of short-lived social trends, and this type of unpredictable engagement is a dangerous game when it comes to trading.
Independent investors advertising stocks on social media can cause rates to skyrocket as their followers jump on the bandwagon, only for the rates to plummet again as traders start to fear losing money. This could encourage traders and investors to chase immediate gains over long-term options.
This random volatility is also causing imbalances in the market. This means that inexperienced investors could unexpectedly end up in complicated situations if low-risk, low-return stocks suddenly boom.
There is no doubt that social media has transformed the trading landscape for the better, opening a corridor between traders and investors. However, users should be careful to educate themselves on investment and trading trends and check social media advice against trusted sources to avoid getting into a risky situation.