Hedge Funds Monitoring Twitter Feed for Trading Ideas

May 27, 2014

It is well known and widely accepted that social media has deeply influenced the way people communicate with each other. While it is acknowledged that most messages posted on social media forums do not carry much substance, the messages give a pulse of the prevailing sentiment among the users on the subject discussed. According to a white paper published by Gnip, a firm that analyzes social media data to spot trends and sentiment a number of hedge funds are using social media data as an investment tool in their trading decisions.

Social Media Captures Trends, Sentiment

Hedge funds are realizing that the social media conversations when filtered could provide useful insights to their investment decisions. As a result, they are showing strong interest in services that cancel out the noise of social media and focus on posts that offer clues to investment decisions. Gnip, which was recently acquired by Twitter points out that social media data providers such as Eagle Alpha, Hedge Chatter, Market Prophit and Finmaven are witnessing strong demand from hedge funds and other financial firms for their services. These firms specialize in filtering social data that are relevant to the financial industry.

Social Media Data Moves Markets

It is no surprise that conversations in social media impact financial markets. In April last year, the markets suffered a mini crash when the Twitter account of Associated Press was hacked and a message was posted that suggested that there was an explosion in White House.

Beyond the short term impact of social media conversations on financial markets, financial firms including hedge funds are seeing value in services that provide insight into the social media conversations. Emmett Kilduff, founder and chief executive of Eagle Alpha which is among the firms that curate social media for data clues and market moving news says demand for his service is steadily increasing among hedge funds.

Prominent financial data providers such as Bloomberg and Thomson Reuters have also taken note of the appeal of social media and have started including filtered feeds from social media firms including Twitter on trading platforms.

Impact on Job Market

It is common knowledge that deep pocketed hedge funds regularly employ dedicated teams to look at big data to find patterns between data and asset prices. The advent of firms offering social media analytics have made the data easily available even for smaller funds. Given the usefulness of the social media data to investment firms it is not a surprise to see more and more hedge funds showing interest in filtered social media data. This does not impact the job market in any way but sheds light on the approach of hedge funds that are quick to deploy new tools to sharpen their research capabilities.

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