Understand the Significant Risks of Short-Term Trading Based on Social Media
(STL.News) The SEC’s Office of Investor Education and Advocacy warns investors of the significant risks of short-term investing based on social media, especially in volatile markets, and provides tips for long-term investing.
Retail investors may seek to profit from volatile markets by buying individual stock, including stock in heavily-promoted companies with smaller market capitalizations. Some of these stocks may be discussed in social media, news aggregators, investment research websites, online investment newsletters, ratings websites, message boards, chat rooms, and discussion forums. It can be tempting to jump on the bandwagon and follow whatever the crowd seems to be doing. Sometimes, however, following the crowd may lead to significant investment losses.
Retail investors should understand that all investments have risk, and that short-term investing in a volatile market carries significant risk of loss.
Short-term trading, including trading aided by the use of margin or options, can lead to significant and unanticipated losses for retail investors. A Library of Congress report identified several investing behaviors that can undermine investment performance, including behaviors that involve short-term investing. Investors should keep in mind these behaviors when considering investing in a volatile market, including:
- Investing in Bubbles or Manias.