This week my company issued what I thought was an innocuous announcement- our software now allows applications to process Twitter tweets with an application and analyze the contents of the messages in real-time. A firestorm of debate ensued, and the issue gained mainstream media coverage in the Financial Times, the Telegraph, CNBC,and dozens of others. The debate gives us pause to consider the role of the sweeping adoption of Twitter as a real-time, global information source, and how that information might be used beyond the mostly social nature of Twitter
today.
One of the examples we cited for this technology is automated trading on Wall Street, where any of the 16 million tweets a day an be analyzed in real time as a means to inform trading decisions. Wall Street tends to be an innovator with new technologies, so it’s useful to use it as a petri dish to examine some of the opportunities and issues around Twitter in a business context.
Trading on rumor is a time-honored trading technique. “Buy on rumor; sell onnews” is one of the oldest mantras on Wall Street and Main Street alike. Any tool that improves the speed or quality of transmitting information is of interest to traders. Twitter does that. But be careful what you ask for – lots of the tweets on Twitter are garbage – scam artists and manipulators. On the other hand, there are thousands of credible sources of information, from the SEC (@SEC_Investor_Ed), to the New York Times (@NYTimes), and even exchanges like CMEGroup (@CMEGroup), which has over 500,000 people subscribed to its tweets about the futures and options markets, and more.
And beyond any individual source, and probably more uniquely, Twitter allows instant access to the sentiment of the masses.
In the Wall Street & Technology article, Todd C. Mirabella, chief investment officer and principal of New York hedge fund QAT, says one of the uses he has found for Twitter is to help look at market volatility and compare it. “So how we get our information, that’s the trick. Twitter can give us information on retail ” [Tweeters] are the herd,” he says.
For example, anything new that Apple does throws Apple’s stock into volatile gyrations. The recent launch of the iPhone 3GS set off a rash of Twitter tweets about what the herd thinks – taken together, they can reveal sentiment – good and bad. Getting that feedback a few seconds faster, or a little better can make a big difference in trading returns.
Business leaders, from CEOs to inventors, use Twitter. For example, Richard Branson (@richardbranson), the CEO of Virgin, tweets regularly. Now I’m pretty sure the news in the first
Nasir Zubairi, former product manager for algorithmic trading and FX E-commerce, RBS, put it this way in the Wall Street & Technology article: “[Twitter can be] the fastest source of news,
particularly in reference to trading and algorithmic trading,” he says. ”News feeds are gaining a lot of popularity. Twitter provides the medium in that people, who are there, experiencing things, are able to broadcast their sentiments to their user base via tweets. This provides lots of competitive advantage to firms with trading strategies.”
News about world events moves the foreign currency markets as Mr. Mirabella also pointed out. He’s not yet trading on Twitter but said he sees real use for Twitter in currency trading: “We like to trade in ranges,” he explains. “That helps us characterize the extreme edges in any specific currency. We’ve been trying to follow more individualized Twitter sites to see if we can get extreme views [of Tweeters]. It does give us flavor for what types of ranges we’re looking at.”
But real use of Twitter has some serious issues. Technically, it wasn’t built for the kind of quality of service that a robust news source, like Reuters (@Reuters), provides – what happens when Twitter is unavailable? There are questions about latency of the transmissions – is it fast enough? Can it be faster? Authentication and forgery are challenges – there’s a big difference between the real Richard Branson (@richardbranson), and the fake Richard Branson (@sirdickbranson) - who is responsible for the quality and reliability of the information transmitted via Twitter? Should it be regulated?
And regulatory issues abound, as well. Trading decisions are moving faster, so regulators have to move more quickly, too. In December the unfortunate trading run on United Airlines (UAL) (read the story from the Wall Street Journal) stock to drop from $12 to $3 in just 15 minutes only served to remind us how quickly conditions can change in an era of sweeping automation. The chain reaction was started by an erroneous trading signal from an old story that the Google news crawler picked up from 2002. How can we guard against these unintended technology-triggered mistakes?
The adoption of Twitter in a social context has been swift, massive, and global. As technology like event processing makes the content contained in Tweets readily available to business applications, the questions of what to do with this power and responsibility looms large.
Postscript and continued debate (July 1, 2009)
Since this writing, there has been a flurry of response – positive, negative, and vitriolic.
My favorite coverage was the excellent, balanced story by Melanie Rodier at Wall Street & Technology: Algo Traders Connect to Twitter. She did her homework, including comments by some well-respected people from the trading industry. Read it first.
CNBC’s Day-Trading 2.0: Twitter Takes on Stocks took a day-trader’s view on using Twitter to understand market sentiment.
The Telegraph’s coverage, Hedge fund managers betting Twitter will give them an edge in rapid trading also covered the intelligence and military side of the potential use of Twitter.
A spirited message board debate on Server Side was provoked by John Davis (@jtdavis) from OnixS. Like many message board debates, there are rat holes, but there’s good stuff there, too.
There was an assertion that StreamBase’s announcement of Twitter connectivity is a cheap marketing gimmick. It isn’t. This announcement was driven by current and anticipated customer demand, as you can see from our history of connecting to Alpha Trading, Interactive Data, Lime Brokerage, Reuters, other news and data sources of many types, and so on. The article you’re reading illustrates the balanced way we’re talking about Twitter.
One blogger, who used to work for one of our competitors, TIBCO, even took the opportunity to predict that StreamBase will be trounced by the “big boys” as they enter our market! To that, I say: “bring it on.” Dr. Michael Stonebraker is one of the inventors and thought leaders in event processing, and StreamBase is known as one of the leading businesses in the CEP market, renowned for its performance and ease of use. Are we wary of their deep pockets? Yes. But the big companies have yet to field compelling products – in fact, we rarely compete with them. Furthermore, the “big boys” have not showed signs of innovation and intrapreneurship as I wrote in When Microsoft enters your market: cause for worry or cause for celebration? And in Innovation: why size doesn’t matter, I countered the argument that big companies are the most effective at innovating in a market like CEP. Richard Tibbetts, StreamBase CTO, clarified IBM’s recent claims of innovation as misleading in On IBM, unstructured data, and CEP. Finally, and most importantly, our customer endorsements from CME Group, BNY ConvergEx, BlueCrest, and PhaseCapital and many more say it best – directly from our customer’s mouths.
9 Responses to Trading on Twitter: Opportunity, Danger, or Folly?
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Back in March, 2007 I wrote about the importance of Twitter as more and more information online becomes available real time. At that point, I suggested that Streambase and other CEP providers could become key components of future web architectures for precisely this reason.
http://www.toomre.com/node/458
I am glad to hear that Steambase has enhanced their toolset to make it easier for people that want to listen to the buzz of the online crowd. Yes, people do need to be smart at how they process unverified rumors they hear, whether they hear them in the pit or online, but that is not a rational argument against finding ways to better gather and analyze rumors, buzz or any other non-structured and unverified information that is flying around.
Very prescient, indeed. Good call. Of course, we’ve been tapping into news sources for a while now, including Reuters, Dow Jones, and other stuff like blogs, etc. But Twitter take it to another level.
Hi Mark,
Sorry for entering in your comment to contact you. I’m setting up a small fund in Brazil and I can’t get anything about Streambase strategy for Latin America (and Brazil specifically).
Apama is already officially certified in Bovespa.
What are your thougts on it?
Thank you for the blog!
Thanks Rodrigo – someone from my organization will follow up with you, if they haven’t already…
Interesting. This one seems like an obvious move. There’s no debate about the basic fact here – Twitter’s a good source of market sentiment – I work with traders and buy on rumor sell on news is how markets work – it’s another tool, just like Reuters, Bloomberg, CNN, but you can get at the masses. What do the news agencies think about this?
I found the link to the TIBCO guy – he’s pretty bitter, I can see why you didn’t link to him – you should have though he’s ranting and obviously has an ax to grind with Streambase. Did he lose a big commission check or something
Hi Jim -
Yes, I found it a bit ironic that there was such a fuss about it. I think what made it such a big deal was that we’re the first software company to do something specific with Twitter from a B2B perspective, as opposed to the purely social usage it’s had to date.
As for traditional news sources, Dow Jones started on elementized news (machine readable news marked up with tags that represent the “elements” of the news), and Reuters has a machine-readable version of their news feeds as well. We’ve worked with both over the last several years. Their information represents a higher level of quality, in terms of content and accuracy. This recently published memo at Dow Jones / Wall Street Journal is an interesting read to get a sense for the kind of code of ethics these publications have:
http://www.editorandpublisher.com/eandp/news/article_display.jsp?vnu_content_id=1003972544
Twitter is different – those who I know that work with it see it as a source for something new – rather than official news outlets, it’s a source for market sentiment from the masses, directly from the masses. The Apple iPhone is an example, as cited in my article, and direct communications from CEOs like Richard Branson is another. CME Group, which is essentially aggregating information about the futures and options market, is another. These are sources that don’t come from traditional media.
As for attacks on StreamBase, whenever you take a position, someone’s going to attack you, for myriad reasons. We have a great company, a great product, great people, and great customers. But we’re not perfect, so I invite criticism, but I’ve decided to simply stick to responding directly to constructive debate. You seem to have made a determination about the credibility of the sources you’ve read, and others can make up their own minds as well.
All THAT said, there was more than just one person who questioned the intent of our release. Indeed, I share some skepticism about how effective Twitter monitoring will be, as most people on the street do. That’s why I presented some pluses AND minuses as we see them. I think that’s responsible and helpful, and those who have been open to hearing a balanced view have been repaid for their openness with insight.
- Mark
Twitter can have its negatives but on a whole I’ve found it a really useful, if nothing else, just to highlight your business and what you want to achieve! Great post!
Hi,
I think this paper give a part of the answer
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1685150
My first reaction was that the increasing automation can be problematic, especially in light of the events last may that ended up being due to automation, but I guess that as far as twitter goes, its just another information outlet. Its there to use for those who want, and if you don’t want, you don’t have to partake. I doubt that this is where the twitter folks envisioned their creation going a few years back…