Does Social Media Affect Financial Markets?
Yes it does and the phenomenon is now more impactful than ever. We have seen numerous examples in 2021 of celebrity billionaires, retail chat forums and social media influencers affecting the performance of various financial instruments.
As mobile trading apps have provided easier access to the markets than ever, we have seen a coming together of social media and financial markets and the formation of communities and influencers who can collectively manipulate market prices.
These social media impacted market movements tend to be sharp and sudden, causing drastic movements in both directions.
Reddit is a much smaller social network compared to giants Facebook and Twitter, and it resembles a public forum. However, one of the biggest stories this year emerged from wallstreetbets - Reddits most popular group related to financial markets.
In a joint effort to raise the price of Gamestop, amateur traders on the forum realised if together they drove up the price high enough, any hedge funds shorting the stock would try to buy back shares, to cut their losses, effectively raising the price even further. This is commonly known as a short squeeze. The event made "meme stocks" Gamestop and AMC some of the most highly traded stocks of 2021.
Gamestop is amongst the top traded companies on the NYSE, with greater volumes recently than Facebook and Electric Vehicle hit Xpeng. GameStop's 2021 fortunes turned around because of social media influence as shares of the video game seller gained in excess of 300% initially, despite the company facing a pandemic related downtrend and largely being expected to fail.
Elon Musk Tweets
The celebrity Billionaire, owner of Tesla and SpaceX has become so influential, that a single tweet can cause sudden movements across a wide range of markets. But it's the cryptocurrency prices where Musk has particular made his mark this year.
It all started back in February, when Musk announced that Tesla will start accepting Bitcoin as a form of payment. From there on, a series of tweets has impacted the popular cryptocurrency both positively and negatively.
Dogecoin was a relatively unknown cryptocurrency until a Elon Musk tweet, about the coin being ''the people's crypto'' caused a 50% spike and gained the currency international exposure. Since then the value of the dog-faced coin has fluctuated, with highs and lows directly linked to the posts of Musk and other influencers, and is now one of the most popular and sought after cryptos in 2021.
Social media has a proven impact on financial markets and has become a factor professional traders cannot afford to ignore unless they are willing to miss the opportunities created by when the next unexpected financial instrument sees its volumes soar as it achieves mainstream popularity purely from social media hype.
Kalin Tsenov has a strong research background in economics with specific interests in Geopolitics and its impact on the Financial Markets.
He joined FXCM in 2018 after obtaining a Bachelor's Degree from Leeds Metropolitan University. Initially starting as a Business Analyst in the Payment Solutions department, he is currently a Product Specialist in the Firms Product & Strategy department.
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