Social media and online forums have become the primary information source for a third of all Australian traders

Reddit forums and social media groups are the main source of information for one in three traders. (Pavlo Gonchar, SOPA Images, LightRocket via Getty Images)
  • Social media and online forums like Reddit have become the go to source of information for one in three Australian traders, according to a new survey.
  • Coming at the same time as a global pandemic, lockdowns, and easy money, it represents a “perfect storm” for markets, according to TradingView director of Australian growth Glenn Leese.
  • While social media can be incredibly useful, Leese says that without financial literacy many Australian traders have unknowingly taken on significant risk.
  • Visit Business Insider Australia’s homepage for more stories.

The proliferation of investment forums in the midst of a global pandemic last year has created a “perfect storm” for Australian dipping their toes into the market for the first time.

Social media and online forums have become the principle source of information for one in three traders, according to a new survey of more than 2,000 Australians.

The survey, commissioned by social investor network TradingView, found that social media is the main source of education for one in five investors, while 12% nominate forums as theirs.

The numbers unsurprisingly increase for the inexperienced traders, a group who are now behind more than 10% of all Australian investment activity and many of whom now populate Reddit forums like r/asx_bets and its US-inspiration, r/wallstreebets.

Coupled with the rise of low-commission or zero-commission trading platforms, TradingView says the explosion of retail investors was unavoidable.

“Coming off the back of last year, particularly with with COVID and lock downs, and time on your hands, it’s created a perfect storm, where social media means there is now such a low barrier of entry to discovering the financial markets and learning about them,” director of Australian growth Glenn Leese told Business Insider Australia.

The ensuing democratisation of finance is one positive product of the move. In fact, r/wallstreetbets’ self-proclaimed ‘degenerates’ actually be much more skilled than they are given credit for, according to new research.

While Leese says social media is “fantastic” for sharing information, he acknowledges trading impulsively on some of that information is not without its dangers.

“As with anything where there’s a lower barrier to entry, there’s always more risk,” he said. “I think that there’s a lot of new investors who are opting to trawl through social media and look for a hot tip versus learning how to actually invest.”

“The difficulty for new investors is not knowing whether the information they’re seeing is true, or even knowing how to interpret it.”

Not all social media hot tips work out.

The sheer number of those following such forums is enormous, as can be their impact on the market. The almost 10 million traders who follow r/wallstreetbets squeezed out short sellers of GameStop stock earlier this year, using their numbers to drive the stock-price 10 times higher, with no regard for the company’s actual value.

While the chances of that may be slimmer in Australia – its ASX counterpart is home to just 67,000 followers – there’s no shortage of inexperienced money at stake. The potential for that to be traded recklessly, based on unverified information that may be read by tens of thousands of people, is equally as real.

“An experienced investor can see a hot tip on social media, see if it’s valid or credible, and assess the opportunity and risk, right, but for an uneducated trader using that tip, it’s not much different to gambling,” Leese said.

It’s a concern that many share. ASIC has repeatedly issued warnings as to the risks the everyday man is taking. On the back of nearly a quarter of a million new signups on its platform alone, CommSec went as far as to release a new education series.

For now, it appears like the harm has been muted in Australia. Hundreds of thousands of first time traders have flooded the market, largely profiting from a 12-month market rebound. That too comes with its own risks.

“Investing in a bull market where everything’s going up, makes you feel like a good trader but there are going to be some hard lessons when the market changes course. It doesn’t necessarily have to be a crash, it just has to be a different market,” Leese said.

“The traders who have taken the time to educate themselves will understand how to reset an opportunity and how to guard against risk.”

Those who don’t are simply riding for a fall.