Monday, 17 September 2012

Why are there rules about what I can say on the forums? Free speech, right?

For a market to function properly, it relies on information that can be trusted by buyers and sellers.  This is true in the real world, and it's true on HSX.

For the discussion forums to work properly as part of HSX, there has to be a system to insure that traders can trust the information posted on the discussion boards.  That's why there are rules about what can and cannot be posted, and why posts that breach these rules may be deleted by the moderator.

Without rules like this, calls to action would be encouraged as dumb traders would buy any stock mentioned on the forums, and smart traders would also invest knowing that dumb traders would be investing also.  The resulting price movement would benefit the person posting the call to action in the first place more than anyone, and the cycle continues - even if everyone trading knows it is manipulation.

This is great for active traders, but everyone who is left behind by the random price movement pays a cost.  Following the forums intently and investing in every bogus piece of information becomes the most profitable strategy, making it less fun for players who trade on fundamentals.  It also affects the forums, making it more difficult to pick out the information that actually should affect a moviestock's value and harder to establish a community.

These dynamics also exist in the real world.  It's the reason why publicly-traded companies have to publish accounts, and why company prospectuses have to contain full information about the company being IPO'd.  It's also why certain types of trading activity - like tactics that artificially inflate price or trading activity - are illegal, because they manipulate the market for the benefit of a few insiders.

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