Social media has changed everything, including online trading— both for the better and the worse. People usually believe that serious matters like trading remain untouched and unaffected by things like memes, influencers, etc. But that is (sadly) not the case. Because, in all actuality, one viral meme can easily influence the volume indicator of any given stock.
Now, this might be making you wonder how online trading on social media can affect the global economy. Well, there are a lot of factors that make it happen. If you want to understand the effects of social media on the same – both negative and positive, you must stay tuned to this article till the end.
Positive Effects Of Social Media On Online Trading
Social media has had some undeniable positive influence on online trading. Refer to the below-mentioned sections to understand some of the ways this has happened.
A Place For Discussion
Social media platforms like X, Instagram, Facebook, and even TikTok have become a place where lengthy, in-depth conversations are held on all things related to online trading. Advice is given and taken, the pros and cons of various stocks are discussed, different kinds of ideas are exchanged, and more.
Furthermore, all the conversations and discussions have led to the formation of tight-knit communities and groups that both retail traders and young investors are part of. This has helped lessen the stigma attached to online trading and promoting trade.
More Financial Literacy
Online trading used to be something that was done by a select, privileged group of people who knew everything about the matter. But now, social media has thinned the line between an expert and a commoner. Help is readily available, making people more informed than ever.
Thanks to the wisdom provided by social media, young investors and inexperienced traders don’t look at online trading as a daunting task anymore.
Promoting Self Sufficiency
Earlier, online trading used to be a tricky terrain that most people were scared to navigate. Money is involved, risks are attached, and several things can go wrong. Needless to say, people kept their involvement minimal. But, this was also because people didn’t understand the aspects of online trading properly.
With social media in the picture, accessing information on all things related to trading, seeking guidance, and making a decision has become easier and a lot less lonely. Plus, you don’t even need a middleman to help you get started with online trading. Information is now available at your fingertips and can be accessed within milliseconds. Greater financial literacy has given rise to self-sufficiency when it comes to trading, thereby boosting the process.
Overall Growth
Everything combined, because of social media, online trading media has witnessed an upward growth trajectory. This has inadvertently contributed to overall economic growth. As per reports, retail traders get to make out 20% of the daily market volume. This also indicated a 100% jump in the number of retail traders that were there in 2019.
Negative Effects Of Social Media On Online Trading
Above, you saw all the different ways social media has positively affected online trading. But hey, things are not entirely sunshine and roses. Because the effects have been adverse, too. The points mentioned below will describe the same.
Volatility Of The Market
Probably the biggest negative effect of social media’s involvement in online trading is the disrupted movements it can cause in the market. Thanks to memes and posts, some stocks can go viral, thereby leading their values to skyrocket. Such stocks are called “meme stocks”.
Small traders take advantage of the situation— and trigger meme stocks that then lead to a short squeeze on the stocks. This is a situation where short sellers hurry to buy stocks to cover their losses.
Given the fact that it only takes about 1.7 seconds to consume content on Facebook using a mobile device and 2.5 seconds using a desktop device, markets witness incredible disruptions every now and then.
FOMO
FOMO, or Fear Of Missing Out, is a term generated by social media itself. Today, it’s a common emotion that most traders will experience when they see a particular section of traders reaping off profits due to some stock rising that they have not purchased. Or maybe their trading profile doesn’t seem as cool as that of someone else’s.
This FOMO makes traders make decisions inspired by impulse instead of a careful analysis of the market. Needless to say, this clouded judgment, more often than not, leads traders to face losses that could have been avoided if FOMO was kept in check.
Self Certified Influencers
How can we forget the role of influencers when talking about the impact of social media in literally any field? Be it health or finance; influencers are everywhere. They have large followings, with people being hooked to everything they say and, therefore, greater influence in the decisions people make. Yes, it’s undeniable that influencers do aid the decision-making process and provide traders with genuine information.
On the other hand, there are self-certified experts with no real knowledge who cause more harm than good. They spread biased, ill-informed trading advice that people sadly believe and end up facing losses. Since there is no regulatory body that can keep these kinds of influencers in check, financially risky and fraudulent practices get promoted.
Final Words
Okay then, everyone! These are some ways that online trading on social media affects the global economy. In this post, we discussed both the positive and negative effects that social media can have on trading. The negative effects can make the whole prospect scary, but hey, financial literacy is the key. The more you learn about online trading, the better you will get at the whole business!
