In the world of stocks, timing is everything and then it is information. In this digitised trading environment, investors can access huge information through numerous online sources. The development of social media has changed the way of information transmission in the financial markets, and the share market is one of the most impacted financial markets.
In this digital age of demat and trading account, after sources like print and electronic media, social media influences society at large and contributes much to the volatility of the financial markets, especially regarding stock investing due to the direct participation in discussions on various online platforms. Social media platforms are flooded with trading tips and hyping stocks. Besides tips and ideas, you can find a number of posts explaining “how to open a trading account”.
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How social media operates investments
Social media is a quicker way of disseminating data and information that influence investing decisions. If you research well, you can find relevant networks and businesses and connect with experts in a sector of your choice for investing. Individuals gauge platforms for training, dissemination of ideas, and being familiar with market sentiments. Based on a study, around 80% of institutional investors are available on social media platforms. Thus, social media has clearly become a part of the investment world.
Increased trust in social media for share trading
It can not be denied that social media has driven a massive wave of social momentum that caused a flock of new investors. These are retail/household/DIY investors who trust social media for investing. There has been a surge in retail trading since 2019, as millions are confined at home due to the pandemic.
However, this increasing trust did not translate the greater stock market participation into greater returns for retail investors, due to which the stock market participation rate has declined.
The Issue
On the social media platforms where the world is so interconnected, anything can go viral quickly. And in this anything, the stock is not an exception.
But it should really matter if thousands of users upvote or retweet a post in the case of stocks! As you work hard to earn money, that cannot be thrown away on an impulse. A viral post doesn’t bring guaranteed returns. There are high chances that you can bet on the wrong side and lose lots of money. Instead, stock investing should be based on practical knowledge of stocks and markets.
Meme investing is also the result of social media influences most of the time. It means a surge of trading volume in the shares of companies due to a viral activity on online social media platforms. Retail traders may rush to buy meme stocks without trying to know the reason behind this surge.
The Solution
You can find numerous verified social media users who are market participants impacting the movement of stock prices hugely more than regular users. It can be CEOs of listed companies, influential economists, analysts, etc. You can follow them for reliable information.
Thus, finding a subtle connection between sentiment and market movements by following reliable accounts is preference over being impulsive based on upvotes. You may have to follow an individualized approach based on industry, or sector, to find the most influential and reliable social media users.
A remarkable increase in the number of social media users globally has improved the entire information transmission system that impacts numerous share traders. For better utilization of social media, find the most credible experts for a stock market or business field on the social media platform and correlate them with your own knowledge and research.
