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What you need to know about the impact of news on stock prices



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Recently, you can often read news in the format "The Dow Jones index has experienced a record drop amid news of the spread of coronavirus." Moreover, such articles in the media appeared regularly and before the topic of the virus and public health came to the fore.

It is no secret that exchanges and investors often react nervously and sometimes very actively to news. Today we’ll talk about what this really means and how the mechanics of this process work.

What really happens when the market digests the news


More than anything, markets and investors do not like uncertainty - this complicates business planning. In the case of coronavirus, the whole world is quarantined, the economy in many countries is slowing down, people are already nervous, and the news of the pandemic stimulates panic even more. As a result, investors start selling all the stocks they have in order to take money out of the market or transfer them to safer investments.

All this leads to the fact that only at the end of February, when news about the coronavirus began to gain momentum, in one week the world markets lost $ 5 trillion of capitalization. At that time, the Dow Jones index made the largest one-day drop in its history, losing 1191 points at once.

Against such a negative background, shares of any companies - both fuel and energy (investors expected a deterioration in their performance due to lower demand for fuel due to quarantines around the world), and even Amazon and Apple (in this case, investors were worried about the supply chain To China).

News infects the market quickly. There are many examples. With smaller events than the coronavirus pandemic, many investors simply do not check out. This works both in plus and minus. So, several years ago, investors mixed up the shares of the startup Zoom after it entered the IPO with the shares of the non-related telecommunications company Zoom Technologies. Securities of the latter soared in price by 47,000% .

Then a lot of articles were written about this, but this year the situation repeated itself - against the background of general quarantine, the demand for the Zoom product increased, stocks began to grow, and many investors again confused them with Zoom Technologies - now they have risen by 557% !

We wrote about the history of the Scottish trader Alan Craig. A few years ago, he was convicted of creating fake Twitter accounts for two analytic companies. In them, he published false information about the opening of investigations against pharmaceutical companies - as a result of their shares, tens of percent cheaper.

How do media influence the market?


An important role in the influence of news on the market is played by the media. Negative materials are usually read more readily. For example, in the case of the record fall of the Dow Jones, no one even remembered that two weeks earlier he had experienced a record take-off. And even despite the market decline in recent months, it is still higher than a couple of years ago.

In addition, investor perceptions should not be underestimated. It’s easier for people to react to news that contains an indication of the movement of prices down or up. If the news is uncertain and needs to be interpreted, then the reaction to it can be very sluggish or extended over time. We have already given an analysis This phenomenon is exemplified by the restriction set for the euro / franc by the National Bank of Switzerland - then the reaction to very important news turned out to be extremely inhibited.

How to protect yourself from the negative impact of news


Those people who do not invest on the stock exchange and do not own shares, the ups and downs provoked by the news, usually do not concern. However, stock market investors are in danger in this situation to get a serious loss. Therefore, one of the trends in the development of the stock market is the use of various self-learning algorithms during the development of trading robots that can filter buy and sell signals and respond quickly to changes.

In order to reduce risks during moments of sharp movements in the market, various risk management systems are implemented in the work of exchange systems. Some of them provide their clients with brokerage companies themselves.

A similar mechanism is in the ITI Capital MATRIX trading system.. It protects customers from risks arising from malfunctions in the risk management system of the exchange. In addition, the SMARTx trading terminal has a built-in risk management module that allows you to limit account operations when a certain loss is reached, as well as protect open positions with stop loss and take profit orders.

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