Time to buy your tickets for our special trading event
IT IS safe to say that social media is now a key tool in today’s markets – helping you to trade. However, there are dangers too. Here are my top five tips for using social media to trade – a taster for the trading show on 24 May.
1 OPEN YOUR EYES
Don’t blindly follow others into trades. You need to do your own research. Other traders will likely have a different strategy to you and as such, their trades, timing and risk persona are also likely to be completely different, meaning the results could be different too. You should not fear using social media for trade ideas, but when it comes to actually trading on the back of them, you should consider many more factors as part of your trading plan.
2 THE NEW NEWS FEED
One of the huge benefits of social media is that it often breaks stories before major news outlets like the BBC or Sky News have the chance to report it, which could give you a vital edge when trading. Social media is great for getting economic data instantly when they are announced, particularly if you don’t have access to a trade terminal. But again remember, many of the stories broken via social media are not verified instantly, so a sizable pinch of salt is needed.
3 STILL ON THE GRAPEVINE
No matter whether you hear something down the pub, on the phone or via Twitter, rumours are still rumours. The fact that they are on Twitter does not make them more credible. In fact, false market rumours now have the potential to spread quickly and wildly through social media as much as correct ones. I have lost count of the number of times there have been rumours of credit rating cuts swirling around social media. So you will do well to recognise that rumours can be exacerbated with social media and must always be treated with caution.
4 JUDGE OPINIONS
Social media can be a great market place for trade opinions. Indeed, some people will even share their trades with you in real time. I personally believe this is a good thing, as it will give you exposure to trade ideas and concepts you may not necessarily have thought of before, or even help you to qualify your own ideas with other like-minded traders. However, remember that these are just trade opinions and more often than not from people you have never met in person, so always treat them with care and due diligence.
5 FACE YOUR FEAR
Social media should be embraced by traders, as it can be used as another weapon in your armoury of information and resources to help you to make more informed and considered trading decisions.
While social media is not for everyone, as long as it is used correctly it is something that shouldn’t be feared.
Joshua Raymond is chief market strategist at City Index and will be on the Social Media meets Trading panel on 24 May.
To meet our panellists and dozens more trading gurus on 24 May, buy your ticket today: www.cityamactivetrader.com
Yoni Assia, who will be speaking at our trading event, looks at the value of social trading
SOCIAL media sites like Facebook, LinkedIn and Twitter have introduced a whole new age of transparency, revolutionising the world of finance, heralding a future in which private investors are the experts. A phenomenon I’ll be examining in greater detail on the Social Media meets Trading panel on 24 May.
Trading was once considered the exclusive domain of experts working for banks and investment funds. After all, the information needed for a comprehensive market analysis is right at their fingertips. But recent studies show that only a third of all actively managed investment funds outperform their benchmarks. That’s understandable – as market turbulence makes it harder to consistently make the right investment decisions – but with the growth of social networks supporting the free exchange of information, institutional investment experts now increasingly have competition from private investors who, through sheer performance, are fast becoming the new breed of investment gurus.
THE KNOWLEDGE SOLUTION
The principle of social trading is that knowledge and experiences should be openly and transparently shared, and be accessible so that each community member benefits from collective expertise. Furthermore, there should be no secrets and no black boxes containing expertise for only a few.
Today, fairly common, social investing platforms enable traders to trade transparently with others, and benefit from others’ experiences. Information exchange isn’t limited to forum discussions; all traders’ activities and statistics, including average returns and risk levels, are published and completely visible in real time.
When eToro started its social investing platform, some finance experts were sceptical. They were dubious of the transparency aspect and believed that investment experts would not really be willing to freely share their secrets. But they were wrong. Most traders are happy to discuss their strategies and opinions, and enjoy sharing their successes. Moreover, they take great personal satisfaction in their ability to attract a loyal following.
THE WISDOM OF THE CROWDS
Does just sharing information really work? A real-life example suggests it does. In March 2011, just after the dual disasters that hit Japan, the social net proved to be an uncanny seismograph. Even before the media reported the horrific news, the eToro network recorded drastically increased activity in dollar-yen trading, led by local Japanese traders.
Moreover, preliminary evaluations show that trading in social networks can significantly improve returns. Comparing traditional transactions and transactions via eToro’s unique CopyTrader functionality, eToro learned that “copied” trades deliver better success rates and higher average returns per trade, with results improved by 10 per cent to 100 per cent and the ratio of profits (as compared to all trades) increased by 8 per cent to 12 per cent. These observations are now being verified by the Massachusetts Institute of Technology’s (MIT) Media Lab.
Social networks lead to the development of new markets where collective knowledge and expertise is beneficially shared. They are open, transparent, highly efficient and solvent. They meet investors’ desires to actively participate in the markets while taking more responsibility for their own investments.
Yoni Assia is the chief executive of eToro and will be one of the experts on the Social Media meets Trading panel at City A.M.’s all-day trading conference on 24 May.