Twitter, Facebook, Linkedin, SnapChat… these are social media networks used by billions of people around the world yet Twitter seems to be of particular interest to traders. While most Twitter users post about news they’ve seen or what they’re doing during the day, a number of traders are looking for ways to make their trades more profitable.
So… Can You Use Social Media To Follow The Markets? In the words of a certain President… Yes We Can!
Getting The Fastest Breaking News
One main reason traders take to social media is to understand what the market masses are thinking. Trending hashtags and popular shares all give an indication of the news events as they break and how people are reacting. Of course, a hedge fund can’t follow 500 million+ tweets each day but there are some who can. Dataminr (CNBC Disruptor No. 43) have developed a program that looks at millions of tweets in real time for information that might be relevant to their financial institution clients.
“It gives them the earliest contextual awareness of events, and that helps companies make all sorts of decisions. They can keep an eye out for what’s happening in a stock or a sector and incorporate that.”
Twitter has a 5% stake in Dataminr so provides access to its “fire hose,” which allows Dataminr to instantly analyze every tweet as it comes in. It’s the only company of its kind with this access level.
Discovering what’s happening the second it happens, or even before is crucial for traders. If you can find out about an oil field discovery before everyone else does then you may use that information to make smart trading decisions.
A Working Example
On July 12, 2013, Boeing’s Dreamliner caught fire at Heathrow airport. Someone tweeted about the incident and an alert was sent out to Boeing investors long before it was reported in the news, many of whom then withdrew funds. The stock price fell by nearly 4.6 percent that day!
Can Twitter Help Traders To Be More Profitable?
A study by Johan Bollen, a professor at Indiana University, found that by measuring sentiment on Twitter, you may predict whether the market will rise or fall 86.7% of the time. Gene Ekster, a hedge fund consultant who works to implement alternative data strategies, said
“Investors are looking for ways to be savvy in terms of social media. It is a requirement of doing business. It’s not necessarily going to make your fund perform above the average, but if you don’t have it, then it’s almost certainty guaranteed to not perform.”
Why Are Investors Taking Social Media More Seriously Now?
There was a time when social media was a lot more vague than it is today. Social media now has a ton of add on tools and plugins which allow traders to analyse trends, gain valuable alerts and even set up reporting. Tools take this entire media stream and help traders look for keywords, analyze individual tweets for sentiment and assess languages and locations. Duplicates and spam are weeded out which makes this a much more viable way to assess the financial markets.
Sentiment analysis tools like Topsy Analytics and Gnip are applied to various media industries but are also used by traders. These produce real and tangible sentiment reports which may be used to determine trading decisions.
Traders today are less likely to wait for news announcements on television and are instead turning to Twitter for instant updates, rumours and hints.
Whether or not you use social media to trade, one thing is sure, there are endless possibilities online just waiting for you to explore them.
Do you use Twitter? Tweet us at @easyMarkets and let us know.