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How social influencers can manipulate trading at stock markets

Social media and new technology facilitate stock manipulation. Misinformation always finds a way in because of ever-changing information dissemination approaches. Two factors facilitate the dissemination of misinformation in today’s financial markets: social media and technological advancement, write Erhan Kilincarslan and Jiafan Li , both of them lecturers at the University of Huddersfield, in a blog post for LSE Business Review.

“As social influencers become more prominent, manipulators may have more chances to implement creative and hidden manipulation plans.”

“Before the 2000s, insiders, traders and institutional investors used to disseminate misleading information or rumours through transactions, social network and online message boards. Today, financial information spreads very fast through online services and social media.”

The authors stress that investors from Gen X, Y and Z with no interest in individual research have different choices for their financial decision-making. 

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“Those from Gen X and Y seek investment advice on copy trading platforms, by “replicating the trades of other, often more experienced traders in real time”. The average age of some platform users is 34 years old.”!

They write that after the launch of ChatGPT in 2023, trading activity in AI stocks has increased 60%t among over-55 investors. Copy trading users tend to follow “gurus” based on “names” and their spectacular returns, but the underlying risks are not mentioned by the platform, which concerns regulators.

They argue that those without financial literacy are easily attracted to a fantasy world promoted by social media influencers.

“Technology removes trading barriers and gives millions of online users, especially Gen Y and Z, commission-free trading opportunities through online trading platforms and “neobrokers”. But it also allocates risks to individual traders without informing them. Gen Y prefers traditional stock trading on Robinhood, whose users were, on average, aged 35 to 44 in 2021, while Gen Z are more interested in cryptocurrency exchanges to gain much higher returns on Coinbase in the US in 2022.”

They write that the intention, education and experience of some influencers remains dubious, especially when they offer financial advice and guidance on risky investments like cryptocurrency and stocks.

“The passion and worship of Gen X, Y and Z towards influencers or gurus may lead to new potential manipulation strategies and regulators have already kept an eye on it. In 2022, the SEC filed charges against eight social media influencers, accusing them of participating in a $100 million stock manipulation scheme on Discord and Twitter.” 

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