The Risks of Finfluencers

The world is moving at lightning speed, and everything has changed, even from several years ago. How the stock market operates is no different, influenced by methods unheard of until recently.

What I am talking about is social media. Even major dictionaries are recognizing a new word, “finfluencer,” as a combination of “financial” and “influencer,” defined as someone giving financial advice on social media. Although it is still considered informal or a neologism, finfluencers can and do shape retail investor behavior, increasing short-term volatility and enabling collective action. This influence is driven by rapid information dissemination and emotional engagement. This can lead to market distortions and scams. Check out meme stocks, such as GameStop and AMC Entertainment, as an example. A recent in-depth study by the Ontario Securities Commission found that:

• 35% of retail investors surveyed reported making a financial decision on finfluencer advice.
• 40% of surveyed respondents considered their specific finfluencer they followed to be trustworthy.
• This group was also 12 times more likely to have been scammed on social media.
• Most used platforms for finding financial information were YouTube (34%), Reddit (22%) and Instagram (21%).
• Most had no idea, even after the fact, that they were, in fact, scammed.
• They were also seven times more likely to trust the finfluencers they followed.
• Non-investors were more susceptible to influence that experienced investors.

Social media has incredible persuasive power. Nearly 24% of surveyed participants reported having purchased the assets promoted through social media, compared to 7% of those not exposed to the posts. Non-investors were more susceptible to influence than those already in the market.

Even though investors recognize that finfluencers are self-interested, they are still drawn to the poster for its perceived accessibility, simplicity and informativeness. They act on the advice of their specific finfluencer they have come to trust, even though the poster generally has no mandatory, standardized credentials. Most operate without any formal training or regulatory oversight. These facts should instill fear in everyone who follows these oftentimes self-proclaimed financial “gurus.”

What you can do: cut through the noise, and check if your finfluencer is registered as an investor professional using tools such as investor.gov, the SEC’s website search tool to check the backgrounds and registration status of investment professionals. This is no guarantee, but it may lend some minor level of comfort.

You should also watch for red flags. Lack of credentials/registration with any regulatory authority or formal training, “get rich quick” promises guaranteeing unrealistic returns, undisclosed sponsorships, such as promoting products or services with clear compensation conflicts of interest, pressure tactics creating a sense or urgency to prompt hasty decisions and a focus on lifestyle over substance. These should all scream to run for the hills.

It is for this very reason you need DayTradeSPY. We teach you how to distill the market amidst the distractions, find clarity and create wealth using our time-tested methodology. We do not give financial advice, but instead teach you how to find the opportunities that emerge throughout the trading day. We simplify the process, using one amazing stock, SPDR S&P 500 ETF (SPY), combining the all-important fundamentals with our proven technical indicators for high probability trades… multiple times a day. How cool is that!

Resist the “free” advice that usually ends in disastrous results. Just ask yourself why finfluencers would care to disseminate stock details to others if he/she had no vested interest? Does that make sense to you? Do you really think they give a rat’s behind about you?

Click here to join this Sunday at 8 p.m., ET, for our Intro to Trading/Week in Review. We will tell you all about our offerings, and how you can truly become a consistent, successful day trader, avoiding the many pitfalls that beleaguer traders, especially novices unaware of the traps.

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Don’t be “finfluenced” into blowing up your account. While many of these social media oracles spin a great story, most create their own wealth through impact on your dime. Honesty and honorability are hard to find on the market. Congratulations, you found it with DayTradeSPY!

Create great trades!

Hugh