Mirrored investing

[ukgaz]

Saw this article in USA Today. This is very worrying that people would be so careless with their money. You could be in your 50's thinking of retirement but following a 21 year old who is taking big risks


Social media shapes new investment strategy - USATODAY.com

[jIM_Ohio]

Worries about fraud

There are also more serious concerns, too, as some worry about ways the technology could open up new avenues for securities fraud. It's possible, for instance, for an investor who is being widely followed to illegally profit from the fact that he controls captive buyers.

One of these traders, for instance, could buy a stock in a separate personal account, then issue the same order in the mirrored account, pushing up the price as all the following accounts buy the stock as instructed.

He could then sell the stock in the private account at a profit, before selling in the mirrored account triggered more selling and, thus, a lower price. In a way, that would be a version of the old "pump and dump" scam.

There is reason to be mindful of the risks. Mainstream social-networking sites have already been used in an alleged securities fraud. The SEC charged two Canadians in June for using social-networking sites Facebook and Twitter to tout penny stocks and mislead investors by predicting big jumps on the stocks' prices.

BUYER BEWARE