Blogs and web articles have been influencing the buying and selling of stocks and other investment products for years through analysis and picks. Articles on web have always been informative about forex trading, investments etc. As social media gains in popularity, this more concise and faster paced resource is also swaying investors in many ways.
In warning against a possibility for fraud in using social media, the SEC notes that social media is being used for “research on specific types of stocks, background information of a particular broker-dealer or any kind of investment adviser, guidance on any kind of investing strategy, up-to-date information and news, or to simply discuss the markets with others”.
In his book, TradeStream Your Way to Profits: Building a great Portfolio in the Age of Social Media, Zack Miller discusses ways to use social media in making investment decisions.Investors may research companies through Twitter, LinkedIn or Facebook or any of the other many social media sites. Zoomedia suggests on their website that companies advertise on Facebook to attract investors.
Investors may also follow brokers, other investors or friends who invest on these sites. For example, even a cable ties supplier would socialize and ask his friends before he makes the purchase. Miller recommends piggybacking (following the investment decisions of others) on investments made by people the investor respects.Any of these resources may publish information about what they have invested in (and at what price), investment recommendations, research on investment or information they have learned from other resources.
Brokers and investment advisors have become active on Twitter. Barclays Stockbrokers (http://twitter.com/BarclaysStock) publishes (with links) general investment advice, specific investment picks, and top ten or twenty lists of different investment products.
The website BabyPips.com published a list of legitimate Forex trading Twitter accounts. One of the Tweeters they recommend is ForexTicket by Mataf.net (http://twitter.com/forex) who publishes specific forex trades.
The financial news organizations, such as the Wall Street Journal (http://twitter.com/WSJ), CNBC (http://twitter.com/CNBC) and CNN Money (http://twitter.com/CNNMoney), also publish Twitter feeds which dispense their own published news or “retweeted” news from other sources.
Another way social media is being used is to mine data to measure sentiment to determine which way the market or a particular stock will go. According to Jonathan Yates (“Tweet Investing”), a study by Professor Johan Bollen of Indiana University found that an analysis of tweets on Twitter has “an 87 percent chance of successfully predicting stock prices.” The hedge fund Derwent Capital Markets is starting a fund based on this analysis.
The article goes on to cite that a hedge fund run by Richard Peterson of MarketPsych posted gains from 2008 to 2010 based on analysis of Twitter and other social media. The hedge fund actually posted a 5.4% gain in the last four months of 2008 while the S&P 500 lost 30%. MarketPsych now sells mood analyzing tools for stocks which “changes about the feelings for a stock” as well as “detection of any kind of rumors and leaks of harmful information before this can be shown to the public via the news.” Visitors to the MarketPsych website can input stock symbols into its MarketPsych Sentiment chart and adjust different parameters in categories such as Topics (buzz, layoffs, merger/acquisition, etc.), Buzz Level and Sentiment.