The easy access to financial markets in the present day has ushered in a plethora of opportunities for manipulation, a phenomenon greatly influenced by social media and new technologies. Influencers from Generations X, Y, and Z are actively promoting market manipulation strategies, highlighting the need for increased discernment in navigating the abundance of information within financial markets.
Over the years, stock market technologies have undergone considerable evolution, progressing from ticker tape in the 1970s to electronic trading in the 1990s and 2000s. Presently, Generation Z is at the forefront of trading with the emergence of ChatGPT. However, notwithstanding these advancements, the issue of stock manipulation remains steadfast, as the spread of misinformation is now facilitated by social media and technological progress.
Social media has played a pivotal role in the rapid dissemination of misleading financial information. Prior to the 2000s, insiders, traders, and institutional investors would disseminate rumors and misleading information through transactions, social networks, and online message boards. Today, individuals from Generations X, Y, and Z spend an average of 151 minutes per day on social media, particularly Generation Z. They have various avenues for making financial decisions, from seeking advice on copy trading platforms to turning to TikTok and Instagram for financial guidance.
The influence of social media influencers and gurus has paved the way for new potential manipulation strategies. Regulators have already taken note of this, with the SEC filing charges against eight social media influencers in a $100 million stock manipulation scheme. The global influencer marketing spending is expected to reach $38.08 billion by 2023, targeting billions of social media users worldwide. Such influencers allow manipulators to implement creative and hidden manipulation strategies.
Technological advancements have also contributed to stock manipulation. With the rise of commission-free trading through online platforms and neobrokers, Generations Y and Z have more opportunities to engage in riskier trading. Nevertheless, this also exposes them to greater risks, especially when these platforms encourage investment in riskier instruments and gather users’ trading patterns and emotions for uncertain purposes.
Despite the ease of access to financial markets, it is imperative for individuals to exercise judgment and discernment. As G.K. Chesterton famously said, “do not be so open-minded that your brains fall out”. Ultimately, the integrity of financial markets and the protection of investors from manipulative practices depend on the vigilance of regulators and the discernment of investors.
In conclusion, the easy access to financial markets through social media and new technologies has opened up new opportunities for stock manipulation. It is crucial for individuals to be discerning and cautious, and for regulators to be proactive in addressing the risks associated with market manipulation.
This blog post was originally published at the LSE Business Review blog.