The SixDegrees.com website, created in 1997, is considered the world's first social media platform. But the establishment of Facebook in 2004 made people more aware of it. With the evolution of the Internet, social media has become a powerful tool that helps one meet new people and stay connected.
According to data, worldwide average people spend 2 hours and 29 minutes a day on social media. Such a huge number, right?
These days, Social media has become a profession, with the use of which many people are earning a lot of money, that’s cool. But some people also use social media for many wrong deeds. One of which is very popular today is manipulating the stock market.
Social media is an ocean of emotions and we know that many fluctuations in the stock market are driven by sentiments & emotions. Hence, social media is the perfect place for people to manipulate sentiments toward any stock. So let’s discover some ways in which social media can impact the stock market and can avoid it by identifying it first.
How Social Media Can Impact the Stock Market: Top 6 Techniques of Manipulation
With Sharing Thoughts
Social media platforms like Twitter, Reddit, and Facebook have gained immense popularity and influence, allowing users to express their thoughts and discuss various topics. As people share information, news, and investment tips, they inadvertently create an environment where stock market manipulation can occur.
When a stock is bought or sold by many people at the same time, the price of the stock tends to fall or rise drastically. This technique is used for stock market manipulation by running coordinated campaigns on social media. In this way, one group may spread misleading or false information to drive up or down the prices of specific stocks, creating artificial demand or panic among investors.
Viral Trends And Pump-and-Dump Schemes
We all know that when a single social media post, video, or meme goes viral, it influences many people. The same concept is utilized in pump-and-dump schemes to manipulate stock prices. Influencers or coordinated groups create hype around a particular stock, causing its price to surge. Once the price reaches a desirable level, they sell their shares, causing the stock to plummet and leaving unsuspecting investors at a loss.
Online Communities And Forums
Online communities and forums, especially Reddit forums have gained substantial attention in recent years due to their role in stock market manipulation. These online platforms function as central meeting points where individuals with similar interests come together to exchange investment strategies, engage in discussions about stock picks, and synchronize their actions. While these communities can provide valuable insights and knowledge, they can also be exploited by individuals with malicious intentions.
With Spreading Fake News And Rumors
The Fake news and misinformation on social media pose a significant risk to the stock market. False information about a company's financials, actions, or legal issues can rapidly spread across social media platforms, influencing investors' decisions. As individuals make investment choices based on inaccurate information, the market can be easily manipulated, leading to significant fluctuations in stock prices.
Algorithmic Trading And Sentiment Analysis
Numerous companies dedicate their efforts to constructing advanced algorithms to analyze social media sentiment and predict stock market movements. Through the utilization of these algorithms, they scan social media platforms for keywords, trends, and overall sentiment related to specific stocks or market conditions. By meticulously processing and digesting this information, these companies empower themselves to make calculated trading decisions that can affect stock prices in the short term.
The rise of social media has undoubtedly helped in taking the benefits of the stock market to the masses. While it has empowered individuals to access and share information freely, it has also created new challenges in market manipulation. Therefore, by understanding all the techniques mentioned in this blog, you can prevent yourself from falling victim to it by being careful with the people who use it.
Today the government and financial companies are also advising everyone to stay away from such tips and making people aware. So, invest your hard-earned money in the right place based on your knowledge and analysis or if you are new to the stock market, consult legal financial experts.