Social media and your stock market portfolio

The position of a stock market trader has typically been reserved for the elite. However the traditionalists of this trade are losing face to the younger technology-conscious population.

While the traditional trading scheme is based on personal relationships and interactions, current trading is being increasingly done online with reports suggesting there are currently 30 million online trading accounts in Hong Kong and China, 20 million in the US and 10 million in Europe.

The clear advantage with online trading is the easy access to a wealth of information, helping traders to make more informed decisions than ever before. The emergence of the laptop only strengthened the popularity of online trading, since users could take it with them anywhere they went. And then we have mobile devices, which have since taken this method of trading to completely new heights, enabling trades to be done virtually anywhere and at any time.

thinkpad laptop

As an offshoot from the growth in online trading, trading forums sprung up where fellow traders communicate their views and opinions on the stock markets, in the hope of making more intelligent guesses. Trading forums could be said to be one of the first examples of the social media revolution. But the use of the forum has remained within trading circles until recently.

The arrival of social media networks such as Facebook and Twitter has revolutionised the way we communicate with each other. It is now not uncommon for us to share messages, pictures, video clips as well as a variety of other things via the social networks. It was only a matter of time before users thought about the possibility of traders communicating ideas via the social networks.

It is known that some financial institutions such as hedge funds gauge market sentiment by analysing Twitter feeds relating to particular stocks. However companies such as Zecco in the US thought to fuse the two environments together to create a social trading platform.

Users can perform online trades as well as incorporate news feeds and financial widgets on their trading ‘dashboard’. An interesting addition to this is that they can integrate their social network accounts, so that their friends, colleagues and fellow traders can see their market views and opinions and the live trades they are placing.

8 Securities is a similar social trading platform based in Hong Kong, which is thought to be the first of its kind for the typically traditional Asian market. Since Facebook and Twitter are banned in China, the platform supports the Chinese social network Sina Weibo to help accommodate the massive Chinese market, which is expected to rapidly grow over the next few years.

In spite of these advantages, the social trading idea has the potential to create a few problems. If a successful trader, who is closely followed by a large number of other traders, makes the decision to sell a particular stock, this trade will instantly transmit to the connected trading community via Twitter for example. This could set off a chain reaction for others who characteristically ‘follow the herd’, resulting in a huge sell off of a stock that perhaps does not merit such an action.

Social trading therefore has the potential to skew market sentiment and increase market volatility. Although the idea may help traders to make more informed decisions, it may conversely cause them to sustain larger losses.

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