FEATURE
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Teodorou says that Twitter has become “absolutely the place” where news breaks first. Tis is in part a consequence of so-called citizen journalism, where people present at the scene of a news event broadcast alerts over handheld devices to social networks such as Twitter. In the FX industry, senior executives are tweeting information at conferences which in the past would have often stayed within the confines of the conference hall. Social networks such as Twiter and forums on networks such as LetstalkFX are also becoming places fermenting rumours and speculation, sending ripples across FX markets.
Teodorou says the broader cultural changes which social media is bringing will make FX market participants quickly integrate social media into their business model within the next two years. “Just like everyone migrated to electronic trading, social media will become commoditized. Te challenge will then be how do you differentiate yourself and have a unique voice,” she says.
Tapping into the fourth dimension
However, opinion remains divided over the value of social media as “alpha generating tools” for increasing profits in the FX markets. In the equities market, Derwent Capital Markets, an investment boutique based in London, launched the first investment fund to utilise market sentiment derived from real-time social media data analysis.
Paul Hawtin, founder and fund manager of Derwent’s Cayman Islands domiciled fund, says social media technology enables the fund to tap into the “fourth dimension” of the “fear and greed” which has always driven financial markets. Hawtin claimed to have obtained £25 million in firm commitments to subscribe for shares in the fund during its initial offer period.
Te fund uses an algorithm first developed by Johan Bollen, a professor of informatics and computing at
36 | january 2012 e-FOREX
Indiana University. Te program takes a random 10 per cent of all Twitter feeds and uses two methods to collate the information. One compares positive with negative comments and the other uses a program designed by Google, the search engine, to identify six moods calm, alert, sure, vital, kind and happy.
In an interview with the Sunday Times, Bollen says: “We recorded the sentiment of the online community, but we couldn’t prove if it was correct. So we looked at the Dow Jones to see if there was a correlation. We believed that if the markets fell, then the mood of people on Twitter would fall. But we realised it was the other way round – that a drop in the mood or sentiment of the online community would precede a fall in the market. Tat was a eureka moment. It meant we could predict the change in the market and that gives you a considerable edge.”
However, Bob Giffords, an independent banking and
technology analyst based in the UK, says
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