Beware putting trust in Twitter
Traders, both local, and international admit to a growing reliance on social media site, Twitter, as a means to gain every possible advantage over the market.
A hoax tweet sent late last month (April) from the Associated Press’ hacked Twitter account sparked a short panic in the stock market, wiping out $136 billion in market value in a matter of minutes.
The tweet stated that President Barack Obama was injured in two explosions at the White House.
While the biggest losers would have been those firms using High-frequency trading (HFT), namely the use of sophisticated technological tools and computer algorithms to trade securities on a rapid basis, Local traders have warned of the dangers of relying on Twitter as a concrete news source.
A new study by Global Web Index has revealed Twitter is the fastest growing social platform in the world by active users, while research provider, StatisticBrain, recently put Twitter’s total number of active registered users at 554.75 million, with 190 million unique site visitors every month and 58 million average tweets per day.
Traders react
“Traders will use whatever they can to get a march on the market,” said Mark Appleton at RMB. He said traders can come under pressure to react to news as it happens on a site like Twitter as it takes away a vital competitive edge – time.
“The faster you react the bigger the risk,” creating a bigger margin for possible error, Appleton said. He stressed that a company like RMB would not rely on Twitter as a direct source without verification, but added that the site did provide a useful source for information 24 hours a day.
More and more companies are starting to use social media to break corporate news, while the site is also inundated with unsubstantiated rumour and claims created through general chat.
“In many respects, Twitter is the latest news wire of Wall Street. Investors have come to rely on the social medium for minute-by-minute news and opinion,” Jack Ablin, CIO at BMO Private Bank, told MarketWatch. “We have to recognise Twitter for what it is – a social media site, and an unfiltered news source.”
Nadim Mohamed, investment analyst and partner at First Avenue Investment Management said that the twitter hoax message demonstrated how quickly social media can spread disruptive misinformation – but also how rapidly it can clear such confusion.
The S&P 500 slid over a percent in less than a minute and then made a full recovery just as fast. “The speed of information transfer is amazing.
“This would not be the first time that the market has been moved because of a rumour. Such rumours have been in existence since before Twitter was created. However, I don’t think we have ever seen as swift a response to a rumour,” Mohamed said.
He noted that there is talk of sophisticated technology, enabling computerized trading based on social media messages (amongst other data). “Such technology helps to amplify such false movements and as a result I’m sure it’s not the last we will see of such events,” the dealer said.
In April, the Securities and Exchange Commission issued a report that makes clear that companies can use social media outlets like Facebook and Twitter to announce key information in compliance with Regulation Fair Disclosure (Regulation FD) so long as investors have been alerted about which social media will be used to disseminate such information.
More on Twitter
Twitter hack puts spotlight on social media security
Twitter is the fastest growing social platform
Loading ...