The relationship between FinTech and the stock market has always shared a fondness of speed. With the world’s financial news agencies ever increasing efforts to get their information out first and high frequency traders shaving microseconds off access to new data, the race now continues with Twitter delivering real time information before the news and in huge quantities. With around half a billion tweets a day, filtering social data that can be monetized is something FinTech analysts and developers have become more interested in since 2010 when Johan Bollen managed to demonstrate a correlation of Twitter mood to stock market prices. This prompted the start of the worlds’s first exclusively Twitter driven major hedge fund which had a return that beat both the market and the average hedge fund in its first year. With such a new innovation, their investors trying to cope with the uncertain economic climate of the time went to other traditionally proven hedge funds.
Five years later on where does this leave us? Will a major hedge fund who specialises in algorithmic trading automate their stocks on the back of twitter or is social sentiment analysis now one of many tools to give a broader market of traders a good edge? Companies like iSentium mine stock related tweets and aggregate them into scores using metrics like joy, fear and doubt providing investors with an advantage when making trading decisions. These numbers could be used as a last word on buying a stock as initially done or they could be one of many advantages that help forecast the market.
Cutting through market noise and stock manipulation on social can reveal that bullish pre-trading sentiment often precedes with negative opening day returns and that bearish sentiment is an indicator of more favorable trading opportunities to come. Like HedgeChatter data and SaaS companies are offering services that provide social sentiment signals for the stock market. Although initially thought that SSI was only suited for major hedge funds, retail investors who use tools like StockTwits can now access larger aggregated data sets from social media. With FinTech apps like Robinhood and social tools becoming more available, stock market trading has never become so accessible.
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Freelance Copywriter (tech) and Content Strategist