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Net Net: Promoting innovation and managing change

The Trading Robots Really Are Reading Twitter

Source: MGM

Let's call it the Twitter Skitter.

When the market briefly skidded after a hacked AP Twitter account reported explosions at the White House, we saw the first real-time demonstration of robo-trading riding on the back of social media.

The plunge in the market was so quick that it obviously was not the result of individuals reading the phony news and deciding what action to take. Computers were making the trades—or, more precisely, ending the trades.

"It's not so much that the computers initiated trades. What happened is that they canceled the orders, so the bids come out of the market. That causes a crash," a person at an algorithmic trading firm explained.

The Twitter data stream has been available to high frequency traders since at least 2009. That's when a company called StreamBase began to incorporate Twitter in the firm's "complex event processing" service, which is basically a platform that aggregates data from a vast array of sources for hedge funds and investment banks.

It's tempting to say that, in retrospect, that was when Skynet became self-aware.

At least since 2010, Bloomberg has been monitoring Twitter feeds and can send alerts to its customers when it detects that a lot of people are tweeting about an event or a company. An outfit called Lexalytics has developed algorithms that it says can read Twitter "sentiment."

None of the big algorithmic traders I called would explain how they use Twitter, which is not exactly surprising. The algorithmic guys never want to explain anything to anyone.

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