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Social Media and Trading Advice about Trading

CFI Analysts
CFI Analysts
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January 17, 2025
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  • The impact of social media on life
  • The role of advice in successful trading
  • The rise of social media in trading:
    • The positive effects of social media on trading
    • The negative effects of social media on trading
  • Optimal use of social media in trading

Introduction: 

Social media has become an essential part of our daily lives, and it has become a major influence on all decisions that affect social, economic and political life.

In fact, the connection of the world of trading with technology has increased the impact of various social media on traders' decisions, whether in terms of advice, guidance or explanations of what is happening in the vast world of financial markets.

Therefore, this article aims to explore the impact of social media on life and trading, review the positive and negative effects of these media on trading, and provide important advice on how to benefit from these media, with the aim of building a safe and effective decision in the world of trading. 

First. The impact of social media on life:

Social media has become an integral part of an individual's life, after billions of people around the world have become regular members of many platforms, so that these platforms have become real communities with influence and weight in various things that happen around us, whether on the social, political or economic level.

In fact, social media has created a new type of communication between people, which specialists call digital communication, which many observers see as a major competitor to traditional natural communication. There are many advantages and benefits that result from this communication, the most important of which are:

1. Facilitating communication between people in various walks of life and transferring their experiences and knowledge across borders. 

2. Social media has contributed to major transformations in demographics, cultural exchange, promoting various issues, and transferring many customs from one society to another. 

3. Social media has changed the way news and information are consumed, by viewing different points of view based on different cultures, knowledge, and experiences. 

4. Social media has contributed to a very large revolution in the field of business and advertising, and the most prominent forms of this revolution fall within what are called influencers. 

Despite these undeniable advantages, there are many side effects, the most prominent of which are: 

1. Misleading or false information that can be transmitted, especially by some influencers who claim knowledge (you can refer to previous articles on trading transparency, especially " Fake Gurus vs. Real Experts in Financial Markets"). 

2. The impact on mental health and well-being because of the negative news that is transmitted. 

3. Feeling incompetent and comparing oneself to what is presented with matters that are beyond one's capabilities. 

4. Increased anxiety, depression, and deterioration of mental health in general because of the constant fears and risks that are broadcast, and the resulting wasted opportunities or losses.

Second. The role of advice in successful trading:

Advice or advice is very important in successful trading, as it helps traders deal with the world of financial markets, which is quite complex, to reach successful decisions.

Even experienced traders need advice from time to time from those with a higher level of experience, to explain what is happening in the markets, and contribute to identifying opportunities and identifying risks, which is positively reflected in effective risk management.

Accordingly, the importance of obtaining advice increases, whether in the field of fundamental analysis, technical analysis, or learning about risk management strategies, which is advice that various social media have made easy to obtain.

Therefore, it is very important for a person to make an effort to identify the appropriate party that provides advice, and to distinguish between reliable sources and misleading information (see the article entitled Misleading Marketing Tactics, and the article entitled The Hidden Risks of Free Signals).

Third. The rise of social media in trading:

We have pointed out that social media has changed the image of social communication at various levels, and trading is one of the things most affected by the rise of these media.

A. The positive effects of social media on trading:

Social media has many benefits that can be achieved if used correctly, and the following are the most prominent of these positives:

1. Instant access to information in a way that keeps pace with the speed of market updates.

2. Learning about various strategies from around the world.

3. Increasing opportunities to communicate with other traders and exchange experiences.

4. Learning about various experiences, especially regarding traders' experiences, whether successful or those that exposed their owners to losses.

B. The negative effects of social media on trading:

Many studies indicate that social media is linked to poor mental health in relation to the behavior of traders, especially amateurs, who suffer losses because of this influence and submission, which can be described as blind submission.

In fact, many analysts and observers confirm that social media has begun to affect the rationality of decisions more than traders are affected by real variables such as profits or economic indicators.

A study issued by Forbes website indicates very serious results about the impact of social media on traders' decisions, the most important of which are:

1. Increased aggressive trading:

Some traders achieving positive performances and announcing them via social media leads some to aggressive trading, which is called the result of bias in the transfer of social experiences.

2. Lack of full experience:

Some influential traders on social media advertise their profits and good results, but they tend to hide the losses they incur and the experiences that led them to those losses, which negatively affects what other traders receive while they transfer their experiences without understanding the strategy for those experiences, or as a result of the absence of the losses incurred by the influencers in their trading journey.

Based on these two results, traders who resort to social media blindly will fall victim to losses, or easy prey to fraud.

In fact, the results indicate the danger of this adherence to the business world strategically, so that traders' performance is limited to short-term speculative thinking and away from the investment approach in various investment tools.

While analysts and observers in this field point to the danger of relying completely on social media, because of the lack of regulation and accountability of these means.

Fourth. Optimal use of social media in trading:

The above shows the importance of social media in the world of financial markets, which is characterized by constant change. However, the use of these platforms must be done according to several tips, the most important of which are:

1. Critical thinking:

The trader must think about what is displayed on social media and verify the sources of information that are displayed.

2. Multiple sources:

It is preferable for the trader not to resort to one source of information, in order to compare and ensure the rationality of what is presented.

3. Reviewing the influencers' record:

Reviewing the influencers' record of experience in the field of trading on social media platforms is an important and necessary matter to increase reliability and reviewing the opinions of many reliable influencers increases informed decision-making.

4. Providing information and financial culture:

Providing a person with financial culture makes him able to distinguish between what is true and what is misleading, and it also increases the degree of self-reliance.

Conclusion:

As a result, it is undeniable that social media is important in the world of trading and its major role in influencing trading decisions in financial markets. Accordingly, it was necessary to know its impact, role, and negative and positive effects, as well as the most important advice that must be adhered to when dealing with these platforms when making a financial decision.

Disclaimer: The content published above has been prepared by CFI for informational purposes only and should not be considered as investment advice. Any view expressed does not constitute a personal recommendation or solicitation to buy or sell. The information provided does not have regard to the specific investment objectives, financial situation, and needs of any specific person who may receive it, and is not held out as independent investment research and may have been acted upon by persons connected with CFI. Market data is derived from independent sources believed to be reliable, however, CFI makes no guarantee of its accuracy or completeness, and accepts no responsibility for any consequence of its use by recipients.

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