scorecardresearchBeware of seeking investment advice from social media channels

Beware of seeking investment advice from social media channels

Updated: 14 Feb 2022, 09:42 AM IST
TL;DR.
Social media platforms capitalize on investors’ naivety and overconfidence to scam and dupe them into investing. 
Social media channels

Social media channels

Socializing on social media is the new norm. Many young people find it imperative to be a part of multiple social media groups and handles. These allow them to instantly connect, an ephemeral experience that many misconstrue as ethereal. What started as people sharing their gastronomic, shopping or travel experiences on various channels has now infiltrated the investment world with many people sharing tips on which shares to invest in. Stock recommendations are now a regular feature of social media applications like Telegram, Twitter and WhatsApp.

Not many are aware of which stocks must be bought, sold or held on to. New-age investors unaware of company fundamentals or ignorant about how to analyse the technical details of a particular kind of stock tend to rely on tips shared on various social media channels. 

Young and overconfident investors new in the field turn into social media influencers influencing people which shares to buy. Innocuous and gullible investors new in the field rely on these tips to invest their money without verifying either the antecedents of the influencers or the finances of the companies they are investing in. This has led to pervasive cases of fraud wherein scamsters share unsolicited stock recommendations in a bid to manipulate their prices and churn illegal profits.

SEBI cracks whip on impostors involved in stock tips scam

In a major turn of events, the Securities and Exchange Board of India (SEBI) barred six people from investing in the stock market in January 2022. Besides, the market regulator also imposed on them a fine of 2.84 crores. The six persons who ran the channel “Bull Run 2017” on Telegram first used to buy the shares themselves, recommend it to their members and then wait for the price to rise. This secret Telegram channel had around 52,000 subscribers who are mainly retail investors. Ironically, these stock manipulators were not registered with SEBI and were thus not permitted to send or share stock tips with anyone. The SEBI is currently scanning for more such ‘closed groups’ on various social media platforms. 

The market is flooded with Gen-Z investors who flock to such channels for tips to earn easy money. Most of them invest in volatile and small-cap stocks as their prices fluctuate easily, thus, inviting unwarranted risk. Many young people now turn to social media for useful financial advice. 

Social media used to manipulate stock prices

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Advanced technology has expedited information to our fingertips. Democratising financial services and bringing them home to everyone with just the click of a button is just one aspect of it. However, its rampant misuse has caused overconfident investors to fall into its trap who do not carry out the necessary research before parking money into them. 

Social media as a tool can be entertaining and useful for certain reasons. However, its effect can be ghastly on the overconfident and financially vulnerable young generation who rely on everything at face value. A few gains can cause many to overtly trust the information shared while overlooking the hidden intent. The possibility of being scammed is humongous with the government being able to trace and track down only a few among them. Add your details to these channels or handles, and you could have scammers misusing your personal information or swindling your savings by throwing at you a simple task or challenge or prompting you to be part of an unforeseen trend. 

First Published: 14 Feb 2022, 09:40 AM IST