Three Minds On Digital Marketing @ Organic

Tapping into the herd through social media has been a goal for investors for some time.  Collective Intellect (founded in 2005 for this sole purpose) and Dow Jones Insights are listening platforms that specialize in this area.  Late last year Stocktwits became the first Twitter based service based on investment discussion and has been driving change in the way that many day traders discuss and evaluate stocks.   But if there was any question about social media having a measurable impact on trading, that has been quashed with the latest announcement that StreamBase Systems is integrating Twitter with its Complex Event Processing (CEP) platform for money managers and traders.

"Users of StreamBase's Twitter adapter can combine Twitter with market data and build data management applications, says StreamBase CTO Richard Tibbetts. In particular, Twitter can be used as a crowd sourcing tool to help gauge people's sentiment towards a particular event or stock. "It's really useful for sentiment analysis, which traders can then use to help them make trading decisions," he adds. Nasir Zubairi, former product manager for algorithmic trading and FX E-commerce, RBS, points out that as Twitter continues to gain sweeping adoption across the globe, it will increasingly become a key medium to convey information to the financial world too."

Now the question becomes: What impact will this have on stock values? 

Will more information make the markets more efficient? The lightening speed of information transfer on Twitter will allow traders to price in news more quickly.  Case in point, both Michael Jackson's passing and civil unrest in Iran were all over Twitter before there was any news coverage that would appear in a trader's feed from Bloomberg or Reuters. 

Or will misinformation and group think lead to more volatility?  If traders act on the earliest rumors the impact on market value of stocks becomes self reinforcing and may amplify the natural tendency of the market to bubble and bust.

Regardless of the answer, it is guaranteed that day traders not plugged into social media will be at a disadvantage.

Thanks to Fang-Lu Lin for the link.

Russ Hopkinson