Spark Global Limited reports：
The two core elements of successful trading are knowledge and timing. The better informed you are, the better able you will be to invest wisely before the market catches up. So what happens when there is a paradigm shift in the way information is transmitted?
Welcome to deals in the age of social media.
You only have to look at Gamestop’s bombshell story this year to see the impact of these platforms.
In many ways, social media can be beneficial to traders. It’s a great tool to get information quickly and can provide a level of education that wasn’t available before. In this way, it opens up the trade to a lot of people, which can only be a good thing.
However, the breakdown of information comes with complexity. Both new channels and new deals run the risk of falling into the social media trap. It’s now a matter of making sure people are using these platforms in the right way, and there are three key things to keep in mind.
In the past, people could rely on newspapers or company reports for information about transactions. Now people can think about the vast Internet. News and suggestions are available on YouTube, TikTok and Twitter, while suggestions are spread through groups on Whatsapp and Reddit. With so much information coming from so many sources, it can be hard to know where to look, whom to trust and what to do – especially for those just starting out trading. But it’s harder to do that quickly.
No dealer should rely solely on traditional publications. The world has changed. However, they shouldn’t rely entirely on social media to trade based on a single tweet. Traders must gather information from a range of sources and figure out which ones are best for what.
In addition to using various resources, it is also important to keep an eye on international politics, natural disasters or social trends. Having a broader perspective can really help predict potential risks and opportunities that aren’t on TikTok yet.
Nowadays, news is often published on social media before most publications. While this is good for spreading information, it can also include fake news. Inaccurate stories and rumors spread like wildfire.
Social media platforms don’t have to follow the rules of traditional media, and posts don’t need to be censored. A few weeks ago, news broke that walmart would start accepting Litecoin. Analysts jumped at the story and the price of Litecoin soared, only to see it dismissed as a fake press release.
Apart from fake news, anyone can create a channel and post trade advice, and there is a lot of demand. Financial celebrities who post tips on platforms like TikTok have seen a sudden rise in popularity since the outbreak. However, the lawless nature of social media means that there are unscrupulous people everywhere offering false information and selling get-rich-quick schemes.
Traders must be careful (using those other sources) to question the credibility of information and cross-reference news or tips. Of course, you can’t be totally risk-averse. It takes too long to verify everything, and you miss out on profitable opportunities. The key to achieving balance is not to be too passive. Have a strategy in place and stick to it as long as you can.
Tip 3: Don’t follow the crowd
Social media also makes markets harder to predict. The rules that have governed trading for so long no longer apply in the same way. Investors are flocking to so-called “meme stocks” — stocks whose social media hype is driving up asset prices for the wrong reasons. While some of this was a coordinated attack on hedge funds, it shows how social media is driving up the prices of popular stocks and ETFs.
Watch how Elon Musk sent the price of Dogecoin soaring or falling with a single tweet. The inability of even the most experienced traders to predict these moves has prompted some banks to develop techniques for gathering and analysing social media to gain insight into where sentiment — and money — is heading.
That kind of hype can easily get retail investors into a bad trade. But if you hear about an ETF doing really well, you may have missed the boat. Err on the side of caution. But most importantly, one must take an independent view, scrutinise the details and weigh whether there is a credible profit opportunity.
Reprint indicated source：Spark Global Limited information