Sharing, powering, and disrupting; Since its inception, these words have described social media’s relationship with the financial markets, a (relatively) new alliance that has blossomed into a full-blown friendship. Social media has developed a special “meta ubiquity” in finance as investors can trade social media stocks and options on the exchanges while using social data itself to help make decisions on strategies.
Sharing the Markets
Social media has become the superhighway to curated financial information immediacy.
Communication has always been social and consumable to varying degrees and information sharing in the markets has come about in different ways, from information exchange in the physical pits to trade desk discussions and trader-to-trader talk. And as the shift to fully electronic trading is on the horizon for all products, it’s logical that financial data publishing and sharing in the social realm would follow the “electronic” suit.
Allan Schoenberg points out in his article Social Media and the Futures Industry that “A great example of social media in action in our markets is in the farming community. We trace our history back to 1848 as a place for farmers to manage their risk, and today the farming community is one of the key participants in social media.”
Transparency is also characteristic of the social media and financial markets mix: if an investor makes a claim and is right, everyone knows it, and if they’re wrong, everyone knows it. While social media opens new doors on regulatory issues, the archival nature of channels like Twitter *should* also force investors to carefully consider what they post.
In terms of curation, hashtags help, but it is the rise of specialty forums like StockTwits that have helped create tightly focused communities around conversations, trends, and observations in the derivatives space.
Powering the Markets
Social integration into trading platforms is moving to be the new normal in spite of some still-closed systems. Besides taking from social conversation traders can give back to the conversation, offering insight to help shape sentiment for the entire trading community.
And just how is social integration helpful in a trading application?
By leveraging distilled sentiment, scoring, signals, and social metrics traders can make more informed decisions in mitigating risk, acting on new trading ideas, and (hopefully) generating better returns. Social media can provide finer data points for analysis, for example, by knowing what the crowd is doing the trader can then weigh that trend against individual strategies.
One example of significant opportunity detection via social data is the example of the recent Wall Street trader who made $2.4 million thanks to a Tweet by a reporter about a company acquisition.
When Tradovate’s next generation futures trading solution is introduced it will feature social integration, pulling in feeds from social streams as well as offering the ability to post data back to the social streams.
Disrupting the Markets
Companies use social data to disrupt the financial markets in different ways - from finding more efficient ways to collect crowdsourced conversations, to separating meaningful information from the noise, to efficiently parsing the data into readily usable sentiment.
Joe Gits from Social Market Analytics recently spoke at FinTech Exchange 2015 in Chicago on capturing trends from social media and the power of data extraction. One of the key takeaways was that social data as a financial predictive model continues to be refined, is increasing in its relevancy, and won’t be going away.
In April 2015 Social Market Analytics was noted in the Wall Street Journal for its early detection of Twitter’s earnings. Their web crawler found the earnings data nearly an hour before its intended release, demonstrating the power of timely social data capture and distribution.
An increasing number of companies are paving the way for social data to create new and powerful avenues of information. For example, Market Prophit launched the first Social Media Sentiment index, a first-of-its kind index based on sentiment analysis of stock related chatter and crowd-sourced opinions in social conversations and S&P Dow Jones Corporate Action data.
Sharing, powering, and disrupting. The relationship between social media and the financial markets continues to flourish, providing modern investors and traders with one more level of information edge. It will be exciting to see just where the relationship between social data and the financial market grows next...
