There is no doubt about the fact that we have now transcended into an era of mass digitization, technology and convenience. There have been some vast improvements in technology if you compare it with the earlier years. These changes, however, have also affected the financial market and communities. There have been numerous successful advances which have led to greatly impacting the financial world in a positive manner and in a manner which has guaranteed the industry’s prosperity in the coming years.
Below is the one of the latest infographics on the growth of Social Media, by Social Recruiter Guide:
And because of the ease of communication between people granted by this technology, it has had a far-reaching implication on how traders communicate in the financial world, especially when you talk about the democratization of equity markets. In simple words, less and less traders now trade from trading floors. Instead, they now use various social media platforms to conduct and discuss their trades with other traders.
The Role of Social Media in the World of Trading
There is no doubt that traders now use different social media platforms to encourage and conduct calculated stock trading, but why is that? The answer is…
The Mass Psychology Factor
It is important to understand that the prices of any stock are influenced in par with the psychology of the people. Social media networks, like Twitter and Facebook, have greatly increased and optimized your ability to talk about trading strategies, exchange opinions and share all the news relevant to any trade. So, as more people tend to join different social media networks like LinkedIn, Twitter and Facebook, the spread of information will increase drastically.
What this would do is make all the relevant information available for traders easy to be shared with all the users of the social network, reducing the time involved in implementing traders’ reactions to changing market trends and conditions. And at the same time, traders will experience a reduction in the time it takes them to respond to an opinion pertaining to any trading situation. For example, if there are rumours around a stock circulating in the financial markets and there is no information that could back this rumour, the social media users will take this rumour as a fact, hence increase the mass psychological factor.
Social Media Platforms Attract High Volume Trading Companies
You’d be surprised to know how many traders are beginning to change the way they think about various market trends. Various social media companies now pay Twitter for access to its vast information hub which comprises of data which can be used to influence the markets. The same social media firms also employ text analysis processes to evaluate and apply that data (which by the way consists of hundreds of millions of tweets).
In light of this, if these trends grow and social media platforms expand, it will most definitely (and they have) attract the attention of high volume trading companies and firms. Trading companies can benefit greatly from the information they get from Twitter and can use it to determine various social trends bouncing in the financial markets. These companies can also use the information to find out whether or not there is considerably volatility in the trading markets. This information is invaluable as they can also use it to confirm their sophisticated algorithms.
A good example can be the recent fall in stock prices when it was revealed that the Twitter feed of the Associated Press became a victim of the notorious “Syrian Electronic Army”. Their feed got hacked and the news caused a 140-point drop in Dow Jones, which in turn caused the market to lose approximately $200 billion.
This could be prevented through the use of algorithm trading and traders won’t have to fear any volatility caused by unwanted activity in the market. If you think about it, the stronger this information stream continues to grow on social media platforms, more people will begin to use the data to start trading without any hesitation.
Filtering billions of messages and tweets everyday would help trading companies to understand what directions the market would end up moving towards in the future. There is no question regarding the fact that billions of people use social media frequently and are growing less reliant on other types of media and because of this massive but productive change in communication, trading in the future will also experience a big change and there is no denying that.