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Buy, Sell or Tweet: Harnessing Social Media Sentiment to Make Money


It's hard to believe that Twitter will be 7 years old this summer. For those who have never tweeted, it may seem surprising that an unedited stream of consciousness, condensed into messages of 140 characters or less, has survived this long, let alone grown to become one of the most dominant players in social networking. It has evolved into an invaluable source for news gathering and dissemination for its 465 million user base, posting 175 million tweets a day.

Enter Paul Hawtin, the CEO of Derwent Capital. His UK-based hedge fund just rolled out the first trading platform designed to gauge the mood of the markets based upon what's being said about particular stocks, currencies, and commodities on Twitter, Facebook (FB), and other social media.

"What we've developed is unique technology that listens in on this data, in real time, then pushes out a rating of investor sentiment on any specific company or stock that you're interested in following," Hawtin says in the attached video, explaining the trading platform called DCM Dealer.

For now, DCM Dealer can trade about 250 UK-based securities, but Hawtin says over the coming six to eight weeks, the list of "instruments" available to trade will grow to over 8,000 in the U.S., Europe and Asia. Once a particular currency, commodity or stock is selected, the system generates a "senti-ball" with a rating that ranges from 0 to 100.According to DCM's website, this new technology seizes upon "a vast amount of data (which) is generated by social media. Twitter, for instance, produces more than 2.5 billion instant messages a week, with Facebook adding hundreds of millions more. Within this dynamic environment, alpha-generating trends and correlations are there to be identified, analyzed and acted upon by investors."

Hawtin says the service is aimed at retail investors who can join and set up an account for free. If investors do decide to take the next step, there is a charge of approximately $4 per trade. "We generate our revenue from trading volume, so the more clients we have trading, the more revenue we generate as a firm," he says.

Of course, the service has yet to go mainstream and therefore its veracity as a tool has yet to be proven. Even so, Hawtin himself says the trading platform is "not some Holy Grail of investment trading signals where you're guaranteed to get rich quick."

Instead, he considers it "an additional layer of information" that should be combined with other more traditional methods of analysis to help investors make better decisions.