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Day trading is once again popular, due to three key factors: the appearance of no-commission trading platforms like ETRADE, the frothy speculation around cryptocurrencies like Bitcoin, and the ease of connecting with like-minded investors on social media. Similar to the late 1990s Internet boom around day trading – in which hairdressers, construction workers and everyday people were suddenly making tens of thousands of dollars buying and selling .com stocks with funny little names – we are seeing the same kind of democratization of trading across the nation, fueled by social media. In the minds of many people, it’s now possible to become a millionaire almost overnight, simply by knowing when to get into and out of positions in the stock market.
The social media trading community
In the old days, you got a stock tip from your barber or your taxi driver. These days, you get stock tips from random strangers on Reddit, Twitter or YouTube. Sure, some of these stock tips might be simple pump-and-dump schemes designed to get people to invest in speculative stocks. But there is always the chance of a big payoff. In 2020, just about any biotech or pharma stock that offered some kind of cure or treatment for COVID-19 got a huge bounce. And a lot of the Internet stocks that became household names in 2020 – such as Zoom – also experienced meteoric gains, thanks in large part to small investors on social media.
What’s unique about social media now is just how ubiquitous it has become. Some people post all day on social media about their favorite stocks or cryptos, and the proliferation of content across social media platforms is exhilarating at times. Overnight, it seems, NIO has become one of the most popular stocks to trade in the world, buoyed in large part by supporters on TikTok (!!!) and Twitter. In January 2020, NIO was getting mentioned about 10 times a day on Twitter. By the end of the year, however, the hashtag #NIO was getting mentioned nearly 7,000 times a day. All people really knew was that NIO could become “the next Tesla” – and that meant they could get rich overnight simply by following a few TikTok influencers.
The dark side of social media froth
Of course, there’s a downside to all this. A lot of this is not really “trading” – it’s really just old-time speculation. Yes, there’s an argument to be made that Bitcoin is “digital gold” and that it should come with a very hefty price tag. But did anyone really think that Bitcoin would soar in price to reach the $40,000 mark so soon? Everyone these days is trying to get “Bitcoin rich,” and that means there’s a lot of dodgy crypto content out there, intended to lure in unsuspecting buyers. In the past few months alone, we’ve seen the rise and fall of the crypto XRP, as well as the blatant pump-and-dump scheme to inflate the price of DOGE to make everyone rich. (Even Elon Musk was tweeting about Dogecoin back in December 2020).
In short, when it comes to acting on trading advice found online, buyer beware. The allure of triple-digit gains is so great that many people are abandoning all caution and going all-in on “Robinhood stocks,” cryptos and celebrity-backed stocks like Tesla. Trapped at home due to the pandemic and lockdowns, they are day trading to make a few extra bucks in their free time. And they are adding fuel to the fire by making their own posts, tweets and videos about market sensations. Just remember – social media is notorious for FOMO. And if FOMO is driving you to invest in the stock market, just understand that TikTok creators might not be the best to go for stock market advice.