SCC urges investors to exercise caution when using social media, online trading platforms

Social media and online chatrooms allow today’s investors to connect more frequently with one another than ever before.

While these resources make investing more accessible to greater numbers of people, they also pose significant risks to the Virginia investor community, especially novice investors, if not approached with caution. The State Corporation Commission urges all Virginians to use caution when using online resources, including smartphone investing apps, to invest.

Danny Taylor, the chief of investigations for the SCC’s Division of Securities and Retail Franchising, notes that social media campaigns and online forums can be misleading. This is because investors on those platforms can influence the trading volatility of a stock by raising interest in a certain company.

“Reddit happens to be a very large platform for younger investors, as well as TikTok,” Taylor said. He added that investments related to the recent cryptocurrency surge are one of the biggest issues that his division is currently facing.

Investors who closely follow social media about trending investments could be at risk of making decisions before considering all of the important information about those investments. To address this problem, the North American Securities Administrators Association recently issued an investor awareness advisory to help investors avoid making emotional decisions that can negatively impact their long-term investing strategy:

• Resist the pressure created by social media chat platforms and buy/sell indicators influenced by social opinions. Do your homework on the sources making recommendations about an investment.
• Check the registration status of both a security’s promoter and the security itself before making any purchase.
• Make sure you fully understand how trading on margin and options work before undertaking such a strategy. Margin and options trading are generally riskier than simply buying or selling securities.
• Keep your long-term investment goals in mind before being pressured into any volatile investment.

The SCC’s Division of Securities and Retail Franchising offers a full list of resources that investors may use to keep themselves safe online.

For more information on securities regulation and registration in Virginia, contact the Division of Securities and Retail Franchising at 804-371-9051 in Richmond or toll-free at 1-800-552-7945.

For more information, visit the Division’s website at scc.virginia.gov/pages/Consumer-Investments or visit the North American Securities Administrators Association’s website at www.nasaa.org.