Social Media Becoming Disruptive Tool For Younger Traders

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Social Media Becoming Disruptive Tool For Younger Traders
Erik_Lucatero / Pixabay

The COVID pandemic produced a new wave of investors and traders, as ensuing lockdowns caused mass unemployment in countries around the world. Now as the pandemic looks to start winding down, younger generations, those classified as millennials and Gen-Zers still only hold around 2.5% of stocks, acquainting more than $1 trillion according to data published by the Federal Reserve.

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While the percentage owned by those aged 25-40 years seems like a majority share, it still doesn't come close to the 55% owned by Baby Boomers, with Gen Xers representing around 26% of the stock market.

Online availability of information, trading platforms, and robo advisors has made it increasingly easier for younger trading enthusiasts to garner more interest in stock trading.

Even with the existing technology available, online trading websites, financial institutions such as banks, trading apps, and online brokers - social media is looking to become a disruptive tool in the trading market.

A survey published in 2021 by Fidelity financial group found that Gen Zers represent around 42% of those who cited they are "most likely to use social media influencers to educate themselves on investing." Older research from 2016 also found that social media postings can predict stock returns and that Tweets that were not retweeted can impact future returns.

Young traders and influencers frequently share trades and trade results on social media by posting screenshots from a brokerage account, trading journal, or banking app, giving the impression that making money in the stock market is easy.

While both industry and academic research support the notion that social media can be an aid to younger traders and investors, how are they able to ensure the information they share, or the trading journals they use are accurate and trustworthy?

Using Social Media For Trading

Content available on social media platforms has become sort of ambiguous, making it difficult for active traders, and veteran investors to filter through inaccurate data, and low-quality information.

The aid of social media for trading and investing does however give one immediate access to up-to-date indicators and news. But to ensure that the information we read and see on our special media feed is accurate, some experts have penned down advice for novice traders.

Follow Trustworthy Sources

Twitter (NYSE:TWTR) has become one of the most used social media platforms on which investors can access on-the-go information. Tweets, which only allow for 140 characters, or less, give traders the ability to skim through Tweets quicker and more frequently.

Although this makes it more convenient, some expert traders have pointed out that accounts that are not verified, or trusted sources can diminish trading decisions.

Most trading platforms and financial institutions these days have a Twitter account or some form of social media. This gives them the ability to easily, and quickly communicate with their followers.

But not all social media accounts that offer trading advice and insights can be trusted, and it's becoming a problem for not just traders, but for many social media users.

Facebook removed (NASDAQ:FB) about 1.7 billion fake or false accounts in the fourth quarter of 2021, down from the 2.2 billion fake accounts they were able to remove in the first quarter of 2019. Even with these efforts, Facebook has mentioned in the past that around 5% or 90 million of all accounts are either fake or inactive.

Fake accounts, low-quality data, and inaccurate information remain a major issue for most traders. And while it's not easy to tell a fake account apart from a trustworthy one, traders are urged to double-check their sources, and the information posted or shared by the accounts they follow.

Research Sources

Aside from fake accounts, or unverified sources, traders can additionally go to work by researching or verifying the information they have received before making a final decision.

Researching sources and the news they provide could however mean that traders will need to spend extra time finalizing their trade position. But these efforts would mean that traders can perhaps evade making costly mistakes or trading errors that could hurt their investments and portfolio.

Guidelines provided by Charles Schwab (NYSE:SCHW) suggest that traders and investors should:

  • Ensure to follow up on past prognostications
  • Ensure accounts that you follow have been verified
  • Are news and information backed by facts?
  • Has data been rooted in the understanding of the markets?
  • Expose yourself to (trusted) voices and opinions.
  • How does the information you read challenge or reinforce your trading strategy?

These are but a few of the basic questions and assumptions that are recommended by experts as social media sees an increasing number of users looking to garner success from trading and investment-related profiles and influencers.

Why Social Media Is Useful

The success of social media has already proven itself to younger generations, but the use thereof can soon catch up with older and more established traders as well.

Swift Correspondence

Social media apps allow users to share information fast, making it easier to update followers regularly on unfolding events and trading sessions.

The best possible example of the use of social media in the trading world was back in 2021 when a cohort of Redditors and GameStop Corp. (NYSE:GME) fans were able to drive up GME shares prices by more than 95% in single-day trading.

While this is perhaps an extreme example, the practicality thereof represents how well social media can work to influence the stock market and traders.

Resourcefulness

Digital platforms and social apps have become more resourceful than ever. Some analysts have found that more than 3.2 billion images and 720,000 hours of video are shared daily.

Between the billions of online images and thousands of hours of videos available, social media allows investors and traders access to a plethora of information right in their hands.

Although the content we daily interact with is based on what and who we follow, and the type of social media we utilize for trading, there's a seemingly endless amount of resources now more accessible and within our reach.

Varying Perspectives

Perhaps a more important stance on the use of social media when entering the stock market is that you can have access to expert advice, commentary information, predictions, and market estimates.

Again, it goes almost without saying that the information you receive from people is only as trustworthy as their authority within the domain of stock market trading.

Popular blog forums such as Reddit, Facebook, and Twitter are among the most useful social media platforms to read trader opinions and get market insight.

Additionally, these perspectives can give you a more double-sided view of a specific area, allowing you to weigh out both sides of the aisle, or perhaps regard the pros and the cons thereof.

Looking Forward

Social media might have already captivated billions, and audiences around the world are constantly growing. Looking towards the future, it's possible that some social media platforms could perhaps generate better support from investors and traders to operate as authoritative and pragmatic stock resources.

There's already room for growth, and whether trading platforms, robo advisor apps, or even online brokers take lead, it remains imperative that new investors verify their resources, double-check the information they're exposed to, and ensure their sources are trustworthy.

Nevertheless, there is a lot of good and bad that come with using social media as a library of information for trading, it all depends on how well you can make use of it.

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Aman is MBA (Finance) with an experience on both Marketing and Finance side. He has worked as a Risk Analyst for AIR Worldwide, and is currently leading VeRa FinServ, a Financial Research firm. Favorite pastimes include watching science fiction movies, reviewing tech gadgets, playing PC games and cricket. - Email him at amanjain@valuewalk.com
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