In the latest incident of manipulating the stock market through social media, James Alan Craig of Scotland is now facing charges in the United States. Reports from the United States Department of Justice accuse Craig of spreading fraudulent information about companies on Twitter. As a result of his practices, shareholders lost more than $1.6 million. Craig has been charged with securities fraud, and is also facing legal action from the Securities and Exchange Commission.
While it might seem surprising that social media websites like Twitter and Facebook could have the power to influence financial markets, there have been other reports of similar situations in the past.
In 2013, a phony tweet from a hacked Associated Press account claimed that President Barack Obama had been injured in an explosion at the White House, causing the Dow Jones to experience heavy losses. Indeed, crazy rumors can cause repercussions on the stock market.
In recent years, social media has become a popular open forum for analyzing economics and finance. These sites reflect public opinion in real time, and they have become critical for determining exactly what the public is thinking at the current period of time.
Meanwhile, people involved in the stock market are watching those with knowledge. Leading economist Paul Krugman has a Twitter account with more than 1.5 million followers. The head of the International Monetary Fund Christine Lagarde has a respectable 320,000 Twitter followers. Others follow the real time updates of dedicated websites like The Wall Street Journal and Financial Times.
The practice has even proven to be affected by academics. Research has shown that online search activity can be used to predict price changes in the stock market. With more available information, there is more reason for the prices to change. And when people use a hashtag on Twitter with a company’s name, there’s no reason that the information won’t be analyzed.
So if you’re looking to get an edge on the market, you might want to strongly consider making use of social media. Just be sure not to give any false information that could lead to your advantage, or else you might end up like James Alan Craig.