Trading on social media

Some forms of ROI are inherently easier to track. While so many focus on the marketing & communications uses of social media, two companies are putting social media analysis techniques to work for institutional investors. What they do is simple: they look for reliable information online, before it shows up in mainstream media and moves the market. By going to the source, they can identify potential trading opportunities for their clients.

Buy on the rumor; sell on the news.
Collective Intellect and Monitor110 offer market intelligence services to the Wall Street crowd (CI also offers a version tailored to marketing and communications). The basics are familiar to anyone who's looked at social media monitoring services—they watch blogs and other online sources for interesting bits of information. The difference is their purpose: to find information that has the potential to move stock prices, before everyone else finds it.

Collective Intellect describes three different use cases:

  1. Traders need to know everything going on with a stock in real time. They don't want a tap on the shoulder, a few minutes after a trade, to hear “didn’t you see that thing on the Internet about their product problem?”

    Traders deal with a lot of information, so there's an emphasis on filtering to find the best information and the best sources.

  2. Portfolio managers and research analysts usually have more time to think, but they need a comprehensive view of activity associated with a stock, an event, a technology, an individual executive, or an industry.

  3. Quants dig through the rich data available in social media for tradeable correlations. If there's predictive power in a social media metric, they'll find it—but don't expect them to share. They know how to make money with math secrets.
Monitor110 shares some enlightening examples of how this works. They have the blogger who beat the Wall Street analysts and the discussion forum that pointed out a company's problems. It's not all social media, though. I was particularly struck by the example of clinical trials results posted on a government site four hours before the company announcement.

If online market intelligence leads to a profitable trade, the ROI is easy to determine, without any arguments about how to translate outcomes to money.

For more on social media/2.0 technologies in the financial sector, check out Christopher Rollyson's notes on Web 2.0 and Enterprise 2.0 in Capital Markets (via David Teten).


About Nathan Gilliatt

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  • Voracious learner and explorer. Analyst tracking technologies and markets in intelligence, analytics and social media. Advisor to buyers, sellers and investors. Writing my next book.
  • Principal, Social Target
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