Long gone are the days in which we waited for the evening news to be aired on TV or for the morning newspaper to be thrown across our lawns to get the latest financial news. Today’s rapid digital era makes getting the news a 24/7 event. Social media has become the go-to place for many to get the latest news and news outlets are increasingly relying on their digital channels for distribution.
This surge in the use of the internet for financial news consumption, has developed on the back of constant connectivity and the urge to create the latest viral piece. A combination which has turned the web into the perfect arena for fake financial news. While some news pieces are so far-fetched that are easily spotted as fake, others seem so real that they quickly spread through social media, affecting the prices of various financial assets.
In recent years, investment firms have established the habit of scouring through social media networks to analyze posts from news outlets and industry leaders with the purpose of gauging market sentiment. While these firms use systems to try and differentiate reliable news from unreliable ones, the systems aren’t perfect and sometimes fall victim to fake news.
In April of 2013, the official Twitter handle of the reputable news outlet, Associated Press, got hacked, and a report of two explosions taking place at the White House and then President Barack Obama getting hurt, was twitted. Although the then White House Press Secretary and the AP were quick to discredit the news and issue statements, the market impact was already done and traders around the world were trading on the Tweet. The Dow Jones dropped over 140 points, quickly recovering with triple-digit gains. According to Reuters, the temporary loss may have totaled $136.5 billion in the S&P 500 alone.
When the media is constantly looking to bring the next big story, journalists are often quick to report news based on their own biases and agenda, and when seeing the public’s reaction in the form of retweets and shares, the media incites crowds to take even further action, just to drive clicks.
Adding fake news to times of hypersensitivity towards terrorism threats for example, makes people believe the media without so much as fact checking, making logical choices or waiting for the dust to settle. This is particularly an issue for fundamental traders, who use the news as fact checking mechanisms. A fundamental trader may hear a financial news story and believe it. If enough traders take the same action, prices are driven in a certain direction, and by the time the dust settles, people have already lost significant dollars.
As common channels of financial news delivery, search engine giant Google and social media leader Facebook, have started to build their very own fake news detectors. However, until these B.S detectors become sufficiently sophisticated, traders should do their due diligence by fact checking news pieces and resist the urge to react.
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Editors’ Picks
AUD/USD keeps losses below 0.6550 ahead of RBA Bullock's presser
AUD/USD is keeping losses below 0.6550 in Asian trading on Tuesday. The Aussie Dollar remains offered after the Reserve Bank of Australia extended the pause while markets digest the less hawkish policy statement ahead of Governor Bullock's press conference.
USD/JPY holds gains below 150.00 on the expected BoJ rate hike
USD/JPY holds gains below 150.00, as the Japanese Yen stays vulnerable amid a classic 'sell the fact' trading on the hawkish BoJ decision. The BoJ lifted the interest rate by 10 basis points (bps) from -0.1% to 0% for the first time since 2007 and abandoned the YCC framework.
Gold price flat-lines above one-week low, awaits the crucial Fed decision on Wednesday
Gold price oscillates in a range and is influenced by a combination of diverging forces. Hawkish Fed expectations, elevated US bond yields and a bullish USD cap the upside. Geopolitical risks lend some support to the XAU/USD ahead of the key FOMC meeting.
Bitcoin price shows weakness, but new BTC whales have created solid support at $56,400
Bitcoin price downside momentum continues to gain strength, giving sidelined and late bulls a chance to buy the dip. The market remains focussed on the oncoming halving, expected to kick off the next bull cycle. For the meantime, however, spot BTC ETFs remain the main play in the market.
Lots of tension ahead of this week's Fed decision
Last week, we got a strong round of US economic data accompanied by hotter US inflation reads. The takeaway of course is that there might be a lot more pressure on the Fed to be looking to scale back its rate cut outlook at this week’s meeting.
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