Karelian Diamond Resources - Re: KDR Stream Log - 20/03/2014 Whispers and Rumours can...

20/03/2014 Whispers and Rumours can lead to wins !! Rumours may have always played a part in moving stock markets, but social media sites such as Twitter mean that retail traders are now more than ever susceptible to trading on them. While rumours can provide spread betters with a chance to make a quick profit, they can also cause large losses. “Since markets first existed, there have probably been rumours and counter-rumours buffeting sentiment,” says David Jones, chief market strategist at IG Index. “It’s fair to say this is exaggerated even more in the electronic age, with so many other avenues for snippets of market gossip to be disseminated,” he adds. Joshua Raymond of City Index, the spread betting provider, says one of the best ways for retail investors to find out about market rumours today is through Twitter, the online social media site, which provides up-to-the minute information from a variety of sources and users through online tweets. “Many analysts are happy to post their thoughts and relate market news through their Twitter accounts these days. This is proving to be an advantage to retail traders, who can gain access to instant breaking news as quickly as some institutional investors, giving them the chance to react,” says Mr Raymond. It can also be a useful way of tracking raw sentiment in financial markets, adds Mr Jones. Analysts say many spread betters are attracted to the idea of trading on rumours they hear in the market. On the issue of rumours there is talk of company making news from Ascent Resources who rose 36% on tuesday on record volume and an update in Slovenia is expected and whispers of a major deal for mining minnow Sula Iron and gold with a possible update on their gold resource and a possible new big named partner. Over at Karelian Diamond An update is expected at KDR in the near term as De Beers, Alrosa, and Rio Tinto – are all increasing production and SBG Securities analyst Tim Clark is forecasting Chinese demand for rough diamonds to increase at a compound annual growth rate of 8.5 per cent over the next four years. Tim O’Sullivan, global head of trading at Gain Capital, says: “The most enticing aspect of trading on rumours is the supposition that one is privy to information not yet available to the market proper. The idea that a trader has information that is yet to be known is a very powerful and emotional one.” But how can retail investors trade rumours and make a profit? Angus Campbell, head of market analysis at Capital Spreads, says the classic adage is “buy the rumour and sell the fact”, and notes this can even be used on the flipside for selling the rumour and buying the fact. “A rumour causes a market response. Once it’s confirmed, it can lead to a sharp reversal,” says Mr Campbell. David Morrison of GFT Markets, the spread betting provider, points out that the market speculation itself, as opposed to the actual event, can cause a price reaction. “So even if the word on the street turns out to be false, a trade can still be profitable. As such, whether the story is true is arguably of less significance to savvy investors; they’re just looking to take advantage of price movements.” For example, on February 15 Iran’s state media said the country had cut exports to six European countries. This caused crude prices to jump about 75 cents, before reverting after a rebuttal was issued. “Iran eventually did act – at least in part – the following weekend, by which time crude had added another $2.50 from the February 15 high,” says Mr Morrison. Analysts say trading these fluctuations in the short term can prove profitable, and the ability to go short means the investor can trade both sides of the speculation if the market moves one way and then changes back. Mr Jones points out that traders can take a contrarian position if they were of the opinion that the market was moving on a baseless rumour and the move had been overdone. “Then the effect of the rumour can be used as a buying opportunity,” he says. “Of course, this is a somewhat risky strategy if the rumour ends up being true and the market extends its move.” For retail traders interested in trading rumours, risk management is crucial. “Decide just how much you’re willing to stake and how much you’d like to profit by, then set stops and limits accordingly,” says Mr Morrison. “Timing is also important as getting into a rally too late will minimise your upside potential and leave you all the more exposed should the speculation prove to be just that.” City Index’s Mr Raymond stresses that trading on rumours is difficult tactic to get right for even the most sophisticated investors. He says: “Often, when rumours funnel down to retail investors, prices have already moved and when these rumours often get invalidated, the market changes direction and retail clients can get caught on the wrong side.” Mike McCudden, head of derivatives at Interactive Investors, says all speculation should be taken with a pinch of salt. “Do your own research and analysis while running a balanced portfolio and you can minimise the risk in these volatile times,” he says. Brenda Kelly, senior market strategist at CMC Markets, agrees. “We advise clients not to act purely on impulse nor speculation. “Market rumours are often driven by emotion and nervous energy. The best advice in that scenario is to endeavour to make sure that your source is reliable, but not to take the news as gospel.”..