Why Traders Use Social Media: Speed & Amplification

Gnip’s asset and investment management clients are consistently impressed by two aspects of our social data that differentiate this data from their other sources: Speed & Amplification.

Speed

Speed relates to the ability of social media content to be ‘instant’; an ability fueled by millions of global users who can break news and sentiment more immediately than traditional media sources always can.

A prime example is news of the death of Osama Bin Laden. Keith Urbahn, the former chief of staff for Don Rumsefeld, is widely credited with the breaking that story… through Twitter!

After Keith’s tweet, multiple retweets quickly followed. Within 19 tweets on this subject, a company called DataMinr had identified this as an important and breaking story. DataMinr, a “global sensor network for emerging events and consumer signals,” then issued a signal to their clients, alerting them to this important piece of information.

How does this play into the ‘speed’ characteristic? Because it would be over 20 minutes before that story appeared on traditional news sites. Access to a data stream that can beat traditional media sources by over 20 minutes requires no explanation as to its value for traders and investors.

Amplification

Amplification speaks to the ability of social media as a ‘crowd-sourced megaphone.’ The propensity of users to like, share, and retweet content from other users gives those consuming social media data an extremely easy mechanism to measure what content is most important to the world – and compare that content against other content in real time.

A prime example is the passing of Steve Jobs. We wrote about Steve Jobs’ passing a few weeks ago – that post is here – but there’s an important item to revisit:

The impact he had on us made his death that much more profound and the reaction on Twitter was immediate and immense. Word spread rapidly, peaking at 50,000 Tweets per minute within 30 minutes. At that point, Tweets about Jobs accounted for almost 25% of all Tweets being sent globally.

Access to Gnip’s social media data stream allowed our clients to measure, in the moment, the amplification of this story to measure the importance the world placed on this piece of news. While I doubt any of us needed to see those numbers to know Steve’s passing was an important piece of news, that’s a clear example of how ‘amplification’ works.

Our clients use amplification as a measure to weigh the importance of breaking news, upcoming events, market and product announcements, etc. against other stories. By capturing a realtime snapshot of what the market considers important – and what it doesn’t – they’re able to add an important factor to their existing algorithms.

None of this is to suggest that either social media data speed or amplification should be a sole factor in investing. But when the Gnip social media data stream provides clients with an additional factor to help understand or predict market fluctuations, the value is obvious.