Trading Twitter

June 24, 2009 in Finance

Bubble 2.0 datapoint of the day: StreamBase has announced that their CEP (complex event processing) software for algorithmic trading now supports Twitter.

One CIO admits in an otherwise Hallelujah-esque article that "traders he has spoken to haven't yet jumped onto the Twitter bandwagon." But here's the clincher (emphasis mine):

A key benefit of Twitter is that it forces everyone to a 140-character limit for single tweets, therefore providing traders with a fast snippet of information rather than them having to sift through pages and pages of research, he points out.

"There's a thousand web sites out there driving you to research," [the CIO] says. "We're not going to spend thousands looking at that information. Blogs might not have enough credibility to put dollars behind them. But a tweet is different. The value of Twitter is that if we can accept it's a rumor mill, that will tell us where the fear driving the herd is going."

Investment professionals don't have time to spend on "research reports" and "data", and bloggers can't be trusted. But 10-word anonymous outbursts from across the globe -- how could that go wrong?

On top of all this, I'm left wondering what information could possible come from Twitter that needs to be analyzed in real time. I will buy that real sentiment can be extracted from the service -but over a period measured in hours and days, not nanoseconds. The example actually being used is that when a bomb goes off, Twitter reports it first because "no one cares about the spelling." But financial news typically isn't like a bomb, unexpected but tangibly observable; instead, it's disseminated via press release or announcement, and covered by (embargoed) streaming news services well before Twitter picks it up.

But I'm getting way ahead of myself, since all StreamBase's software does is scan Twitter - it doesn't perform any sort of semantic analysis at all.

Thus far, Twitter's biggest contribution to the financial world (other than Libor tweets) is StockTwits, a site which has succeeded in moving the mindless drivel of the Google Finance boards into Real Time. Is StreamBase's development going to be the straw that forces every desk to mandate twitter clients for traders?

I'm not holding my breath.

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