Hedge fund managers are turning to Twitter in an attempt to steal a march on their rivals, or so The Daily Telegraph tells us on Wednesday.
That’s very interesting, because several hedge fund managers we spoke to dismissed the idea variously as “all twatter” and “rubbish” – not least because Twitter has carved a reputation more for unfounded speculation and even sensational disinformation than for ground-breaking, market-moving alerts for alpha-hungry fund managers.
Just a few things we plucked out this morning:
But, claims the Telegraph, traders are using software developed by US-based technology StreamBase to monitor “tweets” for price sensitive information. The software plugs into algorithm-based automated trading platforms that have been used by traders for years; but rather than searching Reuters or Bloomberg, the software now scans Twitter.com, the report says, continuing:
Streambase — whose client base includes Royal Bank of Canada and London-based hedge fund BlueCrest Capital Management — was commissioned to develop the software by several “unnamed” clients. The software allows traders to take into account “event-based” information published on Twitter in their automated equity, bond and foreign exchange trading.
The company, whose investors include Inqtel, Central Intelligence Agency’s venture capital arm, claims it could give traders an edge when deciding whether to trade on breaking news, like terrorist attacks and natural disasters, rather than waiting for the information to be filtered through providers like Reuters Thomson or Bloomberg.
Nasir Zubairi, a former product manager for algorithmic trading and foreign exchange e-commerce at Royal Bank of Scotland, said the City would be looking at websites like Twitter.com as a useful market information “broadcast tool”.
“Markets tend to buy on rumour and sell on facts,” he said.
Indeed, if the Twitter hedge-fund strategy described by the Telegraph gets anywhere, you can expect a lot of buying and even more selling in coming months. Maybe on tweets like this?
All of which led us to dig around on Streambase and- what do you know, it’s full of solid advice about Twitter’s way to “dirty alpha-seeking strategies” and hedge fund riches (by the way, is a declaration of any interest on Streambase’s part in order, we wonder..?).
In a post entitled “Be Fast, Be Smart, Be Dirty” on the company’s “event-processing blog“, Richard Tibbetts, Streambase’s chief technology officer, gives advice on “finding alpha”:
You can be dirtier than the competition. I don’t mean being ethically questionable. Instead, I mean working with markets, information, and technology that others avoid. Developers and quants both like systems that make sense, clean systems that have been developed by like-minded engineers and are easier to work with. Getting your hands dirty with legacy systems, systems that haven’t yet been polished to industry standards, or systems which were never designed for trading exploitation is one way to distinguish yourself. For example, trading in emerging markets often requires getting your hands dirty. But it also lets you trade securities that others aren’t following as closely. Trading uncommon or unknown products is one strategy for finding alpha. So is trading based on non-financial information. This has famously been done with weather data and Amazon sales information. Steve Steinberg gave a great presentation on this at O’Reilly’s Money:Tech. Working with these data sources may require checking your engineering sensibilities at the door, but the rewards can be substantial…
And just to ensure all you dirty, alpha-hungry managers out there get the message, Mark Palmer, Streambase’s CEO, follows up with a post entitled “26 Twitter Lessons for CEOs”:
I’m a CEO, and I use Twitter. I started “tweeting,” or using Twitter, as a test a few months ago. When I told one of my board members, he was visibly shaken – all he knew about Twitter he had learned from his teenage daughter, and I could tell he wondered about my focus. But as I engaged with it, I kept a list of the pros and cons from a business perspective. At first, Twitter seemed like a big waste of time – but slowly, my list of pros grew, and my list of cons shrunk. Three months later, I’m convinced that Twitter is an essential business tool…
We’ll end here with Palmer’s Lesson No. 26:
26. I’m more aware of why I love my job because of Twitter. As I was returning from a sales trip, I tweeted: “Anyone who thinks the capital markets are collapsing should go out and spend a day with the traders – lots of innovation going on out here!” The act of paying attention to the ironic, funny, shocking, and curious things that happen from day to day makes me more aware of why I love my job.
We get the message, Mark…