The Wall Street Journal writes about how hedge funds and proprietary traders are working to automate trading based on social media information and sentiment.
Some traders use message boards, StockTwits and Google Insights to “get a handle on the buzz for stocks they are trading,” says the report. Meanwhile, StreamBase Systems Inc. provides tools to trade on information in Twitter posts.
And starting Tuesday, Alacra Inc. will launch PulsePro, a technology suite that several investment funds have been testing for sentiment-based automated trading.
Writes the Journal:
Through backtesting, Alacra has found the ratings generated by its product can lead movements in stock prices by about one to three weeks for large-capitalization stocks. In turn, hedge funds and proprietary traders are interested in the feed despite that it won’t work anywhere near the lightning-fast speeds they’ve been achieving for much of their other computer-based trading.
“This is part of a larger trend to utilize unstructured content as an input for various types of trading signals,” said Paul Rowady, senior analyst at Tabb Group, a financial-markets research firm. He said while the trend began primarily with content from news organizations, social media represent “a natural extension of the trend.”
Of course, the issue of noise and information integrity features prominently in the story. The article quotes Ben Cathers, social media manager at Lightspeed Financial saying: “A lot of these blogs are one-person editorial teams. They don’t have the benefits of a 500-person news team fact-checking everything they say, and yet they have this incredible influence on a company’s direction.”
It’s all interesting stuff. And I think it’s only going to become more interesting in time.
Think about automated trading based on real-time XBRL filings, or — even more interesting to me – trading based on real-time activity data sold by social media vendors. Or how about including in fundamental analysis things like Twitter followers, Facebook fans and page views.
All of this online activity becomes highly relevant data.
Here’s the WSJ article again: #Trend: Trading on Social Media