The numbers behind the rise of investor chatrooms

Almost two million people in the UK use investment chatrooms and forums, many of them younger investors.

One of the biggest news stories of the year was the bizarre surge in price of GameStop (NYSE:GME), thanks to buying by members of the Reddit Wall Street Bets forum. While GameStop was the most notable, several other shares popular with the forum saw their prices inexplicably fly, giving rise to the so-called “meme stock” phenomenon.

Among other things, the incident showed the incredible power of the Reddit Wall Street Bets forum. With 9.8 million users, it has the ability to coordinate a large amount of buying and shape markets.

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However, according to a new survey from exchange-traded funds (ETF) provider GraniteShares, online chatrooms are increasingly the favoured venue for young investors to find out information and share ideas.

The survey found that 1.69 million share investors in the UK are also members of chatrooms, using information gained to make buying and selling decisions. As you would expect, younger investors were the most likely to be chatroom members, with 28% of under-25s being members. That fell to 17% for those aged 25 to 34. By contrast, the survey identified no investors over-55s who admitted to being members of chatrooms.

The survey also found how regular share traders fund their investments. It found that 55% make use of cash savings while 37% use their salary. Meanwhile, 8% were using credit cards to fund investments, and around 5% said they were funding trades with government benefits.

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Will Rhind, founder and chief executive at GraniteShares, said: “Our research shows that users find that chatrooms can be a good source of support and advice for members.

“The risk however is that people rely too much on information appearing in chatrooms.”

Caveat emptor: take care

While such chatrooms can be useful for information gathering and discussion, investors should be sure to treat chatroom rumours with scepticism and do their own thorough research before investing.

Investors should also be on the look out for users trying to talk up their own holdings - often referred to as 'ramping'. They try to influence more investors to buy shares they own in the hope that it will push the price up, so that they can then sell.