Trading on Twitter
Buried in 130 million daily tweets hides a veritable goldmine of information for traders and investors – if you know where to look.
In one corner of the highly lucrative grains market is a growing network of farmers and traders that are using tweets to transform how this multi-trillion dollar industry does business. These tweets are dramatically accelerating the flow of information to give investors an edge in the commodities market.
Farmers are also cashing in, using tweets from the trading floor on pricing to help them time the sale of their products to maximize profit. CNBC spoke to farmers and traders taking part in this real-time dialogue to understand how this information is used, how bigger profits are made and how farming is going high-tech.
From the field to the floor, click ahead to see how farmer tweets are revolutionizing the agriculture trade.
By Jesse Bergman
Posted 8 Mar 2011
Information in the Fields
It all starts on the farm. With the help of satellite-guided tractors and a laptop or a smartphone, farmers like Zach Hunnicutt – who runs a 3500-acre grains farm outside Lincoln, Nebraska – are turning their tractor cabs into mobile offices.
From the field, they’re now tweeting with other farmers in real time about significant events – like planting intentions, crop yields, and weather events.
It might not seem like the most riveting stuff on Twitter, but it’s the kind of information that can be as good as gold for a smart commodities trader…
From The Farm to the CME
Believe it or not, one tweet from a rural farmer in the middle of Nebraska can have an impact here – on the CME floor, the epicenter for many of the world’s commodities markets. Here, traders like Thomas Elwood – a broker in the corn options pits – are on the lookout for tweets from farmers to help them anticipate moves in the ag market.
“These are not your grandfather's farmers,” says Elwood. “These are farmers using sophisticated equipment out in their fields and they’re bringing that technology back to their home and they’re using that and they’re getting on twitter and talking to other farmers. And now, they’re talking to me.”
But for farmers and ag traders, the interaction doesn’t stop there…
The ‘Grains Guru’ and Twitter
It’s not just traders who are looking to cash in on a tweet – farmers are also in the action. Ag traders like Matthew Pierce – aka the "Grains Guru" – have attracted a cult following from tweeting in real-time about rumors, speculation, and market-moving trends in the grains trade. That information is providing farmers, among other followers, with key insights into markets, and that can ripple through the grains markets by influencing a farmer’s decision on when to sell and what to plant.
The network works so quickly that “the farming community itself can immediately react to the information that we put out there and alter their decisions on a day-to-day or hour-to-hour basis, and you can see that flooded back in to a market within a 24-hour cycle,” says Pierce.
And the information network continues.…
Twitter as a Trading Edge
Market participants from around the country are getting in on the Twitter trading network. For independent traders like Thomas Grisafi, who runs Indiana Grain Co. from his home in Valparaiso, Indiana, Twitter is just as important an information source as any wire service or newsletter. For Grisafi, the information flow from farmers and ag traders has become so vital that he’s hired an analyst to scour his twitter feed looking for tradable insights.
“The real strength of twitter is getting to know the actual people who grow the products,” Grisafi says. “The traditional way of receiving information has spoiled,” he told us, “So you look at twitter … it’s an ongoing continuing newsletter being put in front of you.”
But the new world of trading on Twitter is not without its risks…
The Dark Side of Twitter Trading
Sensitive information leaks have become commonplace, including several recent earnings announcements – Microsoft's among them – that found their way on to social media sites like Twitter or Stocktwits before their intended release.
As a relatively new medium for traders and investors, questions also remain as to the liabilities and risks associated with the conveyance of sensitive information, trading strategies, and other market information via Twitter. Other risks include trading on information from a Twitter user you don’t actually know. Anyone can set up an account and call themselves a market expert.
"Twitter certainly comes with a 'buyer-beware' sticker all over it," CME Broker Thomas Elwood told us when explaining the dangers of becoming over-reliant on using Twitter to make agriculture investment decisions. "I've got to be careful about the information I get...and the information I give out." Twitter may be a useful information source, but market veterans emphasize one thing: do your own homework.
Trading on Twitter
Coverage of CNBC's special 2-Day event kicks off on Tuesday, March 8 on Squawk Box. CNBC's Kate Kelly reports throughout the day.
