Opinion is divided about the use of social media to drive trading strategies but the reality is that many investment firms do not know how to capitalise on social media content. Using the right technology and the right skills is essential to save time spent trawling through the noise to find accurate sentiment and content data to make decisions on.
There have been a few academic studies that attest to the correlation between investor sentiment and the behaviour of stocks. The Bollen Study in 2010 suggested a definite link between online news analysis, market sentiment and social media in their paper, “Twitter mood predicts the stock market.”
1. Social media should be used alongside traditional trading tools
Twitter is the primary social media channel for investment banks and hedge funds to derive content sentiment. The fast-pace of Twitter makes it well-suited to providing an up-to-the-minute newsfeed but traders still have to wade through masses of tweets to find relevant or interesting content, so at the moment it is best for measuring a general trend and sentiment in advance of a real life event happening.
2. Save time by using a structured and tailored data source that is built to serve your investment business
Traders are too busy to be on top of Twitter and Facebook 24 hours a day. Using the right technology firms can take online news and social activity and gauge sentiment to predict an asset’s pricing movements.
3. Embrace employee use of social media
Traditionally, many financial firms restricted access to social media to the majority of employees. Increasingly, employee bans are being lifted with the realisation that this is potentially depriving staff of a critical flow of information.
Organisations who take control of social media rather than letting social media control them, will benefit. Employee engagement, investment in technologies such as a social data dashboard, and employing qualified data analysts to interpret data will allow firms to take a step ahead in a social and digital world.