Twitter is catching on in the world of algorithmic trading. While a growing number of exchanges and banks have already been tweeting for months, traders too are now set to use Twitter as a source of news and information, which they can feed into their algorithms in real-time to help them make trading decisions.
StreamBase Systems has just announced its CEP platform's new connectivity to Twitter, allowing its applications to ingest and analyze news emerging from the buzzing social media platform. It is estimated that around 2 million twitter messages a day are currently transmitted on Twitter.
The company's new Twitter adapter allows its applications to both ingest Tweets and to send out Tweets. Both inbound and outbound Twitter messages can be event sources.
Users of StreamBase's Twitter adapter can combine Twitter with market data and build data management applications, says StreamBase CTO Richard Tibbetts.
In particular, Twitter can be used as a crowd sourcing tool to help gauge people's sentiment towards a particular event or stock. "It's really useful for sentiment analysis, which traders can then use to help them make trading decisions," he adds.
Nasir Zubairi, former product manager for algorithmic trading and FX E-commerce, RBS, points out that as Twitter continues to gain sweeping adoption across the globe, it will increasingly become a key medium to convey information to the financial world too.
"It's going to be the fastest source of news, particularly in reference to trading and algorithmic trading," he says. "News feeds are gaining a lot of popularity. Twitter provides the medium in that people who are there, experiencing things, are able to broadcast their sentiments to their user base via tweets. This provides lots of competitive advantage to firms with trading strategies."
Zubairi acknowledges that at the moment latency on a trading desk is lower with Reuters or Bloomberg news feeds. But it's all about how the news is processed, he says.
"With Twitter, no one cares about the spelling. Let's say there's a Reuters correspondent in Iraq and something happens there, what's the fastest way to get the news out? [The reporter] can send off the news to the Reuters agency. But with Twitter, it goes out instantly," he says. Anyone in Iraq can send out news about a bomb or any other event through a tweet. "It will still get to the market faster than any other source can deliver."
Todd C. Mirabella, chief investment officer and principal of New York hedge fund QAT, which mainly trades foreign currencies, says the traders he has spoken to haven't yet jumped onto the Twitter bandwagon. "Sometimes it's a [company] policy issue, sometimes it doesn't serve them all the time to let us know the color they have on their desk as it's their proprietary information," he says.
But Mirabella says he sees a real use for Twitter in currency trading for example.
"We like to trade in ranges," he explains. "That helps us characterize the extreme edges in any specific currency. We've been trying to follow more individualized Twitter sites to see if we can get extreme views [of Tweeters]. It does give us flavor for what types of ranges we're looking at."
Mirabella says one of the uses he has found for Twitter is to help look at market volatility and compare it. "So how we get our information, that's the trick. Twitter can give us information on retail " [Tweeters] are the herd," he says.
While it takes a lot more than several thousand Tweeters to move the market, if a lot of people are moving in one direction, "it's something we want to know about," he adds. "The mantra is, you want to buy the rumor and sell the fact. Rumors will drive the market until the hard news comes out."
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," he 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."
Meanwhile, Mirabella says he wishes banks such as Morgan Stanley and other institutions with strong research departments would let "their internal people put out a very specific tweet, such as about the Euro/Yen trade today."
"If there was a group doing just that, I would buy into it. It's meaningful. It would be very interesting," he says.
StreamBase's connectivity to Twitter is available for download from the library in the StreamBase Developer Zone, located at http://www.streambase.com/developers-library-code.htm.