By Dan Simon, Markets Media Correspondent
After Selerity's scoop of Twitter's earning (ironically sent out over a tweet) sent the stock through the floor, it's clear social data matters but how seriously are traders incorporating it in to their decisions and workflow? We spoke with Ryan Bailey, CEO of financial social media platform Contix, to get his opinion on the growing adoption of social information in trading.
We’re seeing more chatter about social data being incorporated in to trade decision making. What are you seeing as you try to pitch your solutions to the financial industry?
When Contix launched just under three years ago, most traders found the idea absurd. We got a lot of strange looks during pitches. A lot has changed in three years. While still a nascent space, the hypothesis that you can find differentiated breaking financial news on social media has been proven. We are seeing traders gaining increasing awareness that social media is routinely the fastest conduit of breaking news and they are starting to incorporate it more and more into their trading decisions and workflow. The scoop on Twitter's earnings is a very recent and visible example, but social media scoops traditional media on a daily basis, and there is a rapidly growing number of traders and firms that know this.
It's one thing to be quick with social data but it's useless if it's not relevant. How do traders separate the signal from the social media noise?
Without specialized, finance-specific tools that employ a multivector approach to noise reduction, it’s exceedingly difficult. Noise comes from many places ranging from inexpert rants about companies and their products to CEOs who make a dozen comments about their life philosophy and favorite causes for every one tweet about their company. On Twitter alone there are over 500 million tweets per day. If traders are only watching their unfiltered feeds, the SNR is going to be extremely low. Even market luminaries typically produce a significant amount of irrelevant content. Solving this problem - identifying the signal of relevant, timely and actionable information for traders in the sea of noise - is our sole focus. The other side of this is discovery: ensuring you don’t miss a post.
Our product also incorporates traditional media in order to provide the very earliest mentions of events relevant to traders and investors, whether it breaks first on the social or traditional side. Finally, we cluster posts to provide progressive resolution on events as they unfold.
Firms like Derwent went out of business pretty quickly - is social trading a viable reality?
There is no doubt whatsoever that social media is an extremely valuable data set for traders and investors. The question, of course, is how traders and investors incorporate social media data into their process. I believe Derwent, and several others, relied too heavily on the notion of social sentiment being a crystal ball indicator of market movements. We take a different approach. We view social media as the place where news frequently breaks and can be placed in a rich data context. Contix identifies the earliest mentions of these breaking news events in real-time and delivers them to our customers using highly tuned algorithms.
If so, what is the optimal way for traders to use social data?
Traders should view social media as simply another source of breaking news. If they incorporate breaking news into their trading or investment process, they should be interested in social data. News is being broken constantly on social media by citizen journalists, bloggers, industry experts, reporters (sometimes ahead of their news organizations) and by companies and news makers directly. There are other approaches to deriving value from social media such as sentiment analysis, and we do incorporate sentiment to a degree in our algorithms and our graphing tool, but our focus is breaking news.
A number of providers have cropped up focused on social media in FS and even some of the industry agnostic players like Hootsuite and LinkedIn are moving specifically in to finance. What separates Contix from the other players?
Delivering the very earliest mentions of important financial news in real-time as they break on social and traditional media, and doing so reliably and credibly, is a very difficult technical problem. The most effective algorithms in any domain are usually the ones that are 1) the most deeply trained and tuned, and 2) the most narrowly scoped. Contix is both. Our team of data scientists have been hard at work on this problem for many years now and have developed many novel approaches to solving the various aspects of this problem. It will be a challenging task for new entrants to reach parity. And Contix is designed solely for finance as opposed to multiple unrelated end markets. We strongly believe a focused approach results in a much better product. Think of Contix as a razor blade instead of a swiss army knife. The end result is consistent and reliable identification of the earliest mentions of breaking news events relevant to financial markets.
Finally, where do you think social media and finance will be in five years?
It’s clear from current trends in industry interest and adoption that social media will be much more commonplace from trading floors to online brokerage toolsets, both for consumption and sharing information. Companies will communicate with the investor community more directly using social media. This will democratize access to information and reduce reliance on some of the traditional providers of financial news and related data.
As examples of successful trades and trading strategies based on social data continue to surface, it will become a must have for many types of traders across industries, instruments and strategies. There will be more tools, better tools and greater integration with data from other sources to allow the full context of social alerts to be quickly and accurately understood.