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How Online Social Networks are Changing Trading

The days of men and women in blue shouting across the stock exchange floor, making hand signals, and waving piece of paper in the air are quickly going out of style. With the rise in technology and its growing use by the general public, both computerized trading and use of online trading platforms have made floor trading much less common.

Trading Today

Over 80% of US trading today is done by automated computers. These computers follow algorithms to enter and exit trades, and can be a profitable way to trade without any human interaction. The problem though is that since there is no brain with reason behind the trades, sharp drops and spikes in stock prices can quickly go awry. Human trading is still arguably one of the best ways to go, as long as you are using the best trading strategies to fit your style.

To get to the exchange floor today, the average trader gets up, gets dressed (though technically no one would know if he didn't), makes a cup of coffee, and turns on the computer. Before the bell rings, these online traders analyze their trading tools, reviewing their scanners and searching market news. There is a different hustle and bustle to this event with the trading floor absent. The sounds are made up of market new sounding from speakers and the clicking and typing on the computer. Somewhere the bell rings.

Live Trading Chat Rooms

As with any task that requires sitting behind a computer, trading online can feel like a very solitary and silent act. To make trading a more prosperous and social activity, traders have formed online trading chat rooms where they not only socialize but share ideas and contribute to each other's market knowledge.

Within just minutes of a room being active, the once-solitary atmosphere can be filled with market conversation from hundreds of traders around the world. The largest trading chat room on Wall Street regularly sees over 2,000 traders in its daily member chat room, with easily hundreds more during free access days.

How does a room so large keep from getting overwhelmed with comments? To keep the chat room focused and make sure that it is producing useful content, chat rooms might have leaders and moderators taking charge and directing the conversation, and “off topic” chats where limited non-market related conversation can take place.

Copy Trading

One popular reason traders join a chat room is to copy the trades of others, or "mirror trade." While some chat rooms, traders, and educators tout this strategy, others advise against it, quoting the old adage about giving a man a fish versus teaching him to fish. Particularly with day trading, which can be a high-speed event, even a few seconds of delay between the first trader’s move and the second trader’s duplication can alter the effectiveness of this technique.

Social Media for Trading

But the socialization of trading goes far beyond online trading chat rooms. Social media has come to play an important role for many traders. With sites like Twitter and StockTwits, both aspiring and established traders can get real-time updates on market news and what stocks are being traded.

But because the internet is such an open source, pretty much anyone can call themselves a trading guru and gather a following. Like with any source, it is important to make sure that yours are legitimate.

Before following another trader, make sure you do your research and also that you know how and what they are trading. For example, are they trading a demo account or with real money? What kind of experience do they have? Do they have a history of making money on the stock market and has this history been verified? What size account are they trading? If it turns out you’re copying a beginner who is trading a $40,000 demo account while you’re trading a $4,000 live account, you can be setting yourself up for big mistakes.

Time is Money: How to Invest Yours

Many people spend a good amount of time looking for the best people to follow and copy when much of that time can be spent on a trading education. There is a whole internet of resources at our fingertips, and it is filled with information on the best tools, strategies, and mental techniques to use to become a successful trader. Ultimately, the best way to make the best trades is to be a great trader yourself, and online communities are there to help you get started.

Written by Allan Smith