The Power of Social Media in the Stock Market

| March 23, 2021

While the recent GameStop situation has brought the topic of social media’s impact on the stock market to the forefront, social media has, since its inception, had the power to influence many things. The stock market is no exception.

Think about the things that you see on social media every day: pictures, videos, jokes, memes, news, sports, etc. All of the content on social media, whether it is written, visual, or audible, is emotional in one way or another. This is where psychology comes into play.

Users see content and judge whether it is funny, sad, true, false, worth sharing, worth responding to, or worth getting involved in. An example of this is seeing a news story, reacting to the emotion of that story, and then trying to find out what you can do to help that specific situation. This is no different for the stock market. This article will explore the power that social media has in the stock market and how the information shared on social platforms can lead to real stock market actions.

Social Media: A Space to Gather and Share Information

Social media has always been a digital space to gather and share information. In its infancy, social media was focused solely on connecting with friends and family but has transformed to allow users to communicate about whatever they want, whenever they want, with whoever they want.

So, for instance, a group of Reddit users can discuss the potential of buying GameStop stock and coordinate their plan in a way that has never been possible before, sending the entire stock market reeling to catch up. That situation also played out the way it did because someone shared information in a way that made other users believe. There was an emotional response to what was shared and it brought about real actions in the stock market.

The GameStop situation is the most large-scale example of social media’s impact on the stock market, but every day there are thousands of users sharing information on social media that affect how people view a certain stock, a new trend, or the market in general.

Before social media, an individual would only be able to see how other people felt about a certain stock by looking at how it was performing in the market. Now, on Twitter and other social media platforms, they can see how other individuals feel about a certain stock through their social media posts, even before those feelings reach the market. People tend to believe and align with the data and information they see on these social media posts.

In addition to seeing how people feel about a post, users can also see actual data and analytics about stocks whenever they want on Twitter or other social media platforms. This can help back up those feelings and provide people with proof. Then, with that data, individuals can choose whether they want to take real actions in the stock market, like buying or selling a certain stock.

While there is a lot more psychology and research out there relating to social media and its impact on the stock market, the most notable role social media plays in the stock market is as a forum for individuals to share information and communicate with one another. By looking at content posted on social media, users can see how others view a certain stock and can then make their own decisions about whether they want to invest. This leads to social media users having a direct effect on the stock market through the sharing of opinions and data. 

By seeing how other people view a certain stock, social media users can then invest in that stock because of that information they viewed on social media, whereas before they would only be able to know how people felt about a stock due to how it was actually performing in the market. This is a psychological response and we know that psychology is a built-in part of social media. You tend to feel the same way as the content you are viewing. Just like other posts on social platforms, psychology plays a large role in the power social media has in the stock market and, in this way, is allowing social media to change the landscape of businesses, the stock market, and economies.