How are Market Rumours Circulated

Market Rumors 

The broadcast of unconfirmed/ unofficial/ unverified market news/ information circulated through a variety of means such as word of mouth, media within the financial market about the company or securities or economic events. The stock market reacts quickly to such market rumours. These rumours can influence investor sentiment and stock prices but are not necessarily based on facts or official announcements.

What Is Meant By ‘Buy on Rumors Sell on News’?

News and Rumors can have either an optimistic influence or a negative influence on the stock price.

And as such, this news is likely and the prospects are priced in accordingly. If and when these prospects are established with the actual news, the stock price may drop for the time being.

In stock trading, many traders buy on a Rumor, which indicates that they treat the forecasts of technical analysts as if the event has already taken place as they forecasted.

When it is done, the price bar of the stock is built up just like the predicted news is supposed to do.

Sell on news indicates the selling of the stocks once the actual investment news is out. It is highly impractical for a product or a company to live up to the anticipation set by Rumors. Hence, on the announcement of the news, the stocks are sold off.

In some cases, the Rumors that are being spread around could also be the broadcasting of confidential non-public information.

Such an act is called insider trading, wherein the trader with the ownership of such non-public information tries to buy or sell stocks in order to make a profit or avoid a loss.

In online trading, Rumors often pay off for short-term traders and are a risky business when it comes to assessing and reviewing the forecasts and buying or selling once the news is exposed.

What Impact Do Rumors Have on The Stock Market?

Rumours can influence markets and stock prices as traders may buy or sell based on analysts' forecasts. This activity can cause a stock's price to rise or fall if enough traders hear and act on the rumour.

Typically, traders aim to profit before an announcement, as by the time it's made, its potential impact is often factored into the stock's value.

If the announcement differs significantly from expectations, it can further affect the asset's trend. Traders who acted on the rumour may either incur significant losses or earn larger profits than anticipated.

Similarly, when the rumour is confirmed, the trend usually reverses as early traders sell their holdings.

Conclusion

The "buy on rumours, sell on news" strategy is a popular trading approach that seeks to take advantage of the market's tendency to overreact to rumours and news. While it can be profitable, it requires careful planning, analysis, and execution. Traders should be aware of the risks involved and be prepared to adapt their strategy based on market conditions.

Frequently Asked Questions 

What does "buy on rumours, sell on news" mean?

This strategy involves buying a stock based on rumours or speculation before a significant news event and selling the stock once the news is officially announced or becomes public knowledge.

Why do traders use this strategy?

Traders use this strategy to capitalize on the market's tendency to overreact to rumours and news. They aim to buy before the news is announced when the stock price is lower and sell after the news is public when the stock price is higher.

What are the risks of trading based on rumours?

Trading based on rumours carries risks, as rumours may not always be accurate. If the news does not materialize as expected, traders may incur losses.

How can traders identify rumours with potential impact?

Traders can identify rumours with potential impact by monitoring market chatter, news sources, and social media for unusual or unverified information.

How can traders manage risk when trading based on rumours?
Traders can manage risk by setting stop-loss orders to limit potential losses and by diversifying their portfolio to spread risk across different assets.