Welcome to the world of Twitter. There is an online revolution happening and many people are not even aware of it. While it remains a bit of a mystery to many, the use of the social media site Twitter is currently exploding. Estimates vary, but a Compete.com blog entry puts the number of Twitter users at 6 million, a number that is growing fast, considering there were fewer than 1 million a year ago.
According to research by the Pew Internet and American Life Project, as of December 2008, 11 percent of online American adults said they used Twitter or a similar microblogging service, compared with 9 percent in November 2008 and only 6 percent in May last year. It is still a long way from reaching critical mass, but its user base is clearly growing rapidly and the platform is gaining traction in some interesting places-most notably in the trading community.
Other social networking sites such as Facebook and LinkedIn are by now hugely successful and used by millions-Facebook has 175 million users-but they have yet to really convince companies of their business appeal. And despite a lot of hype, virtual worlds like Second Life have not really taken off. Many firms are interested in the potential of Web 2.0, but have yet to find a way to make it work meaningfully for them. Twitter seems to be gaining traction where other platforms have failed because of its simplicity-there is no need to upload and maintain a detailed user profile-and because of the easy access to the Twitter community.
Communications professionals such as public relations (PR) agents and in-house corporate-communications and marketing employees are eager early adopters, drawn to the ability to share information instantly with a large number of people at once. Using Twitter enables firms to share information about new products, discuss upcoming events, and even explain company results or movements in a firm's own stock price to investors and day traders who scour the social media site for pieces of news, says Allan Schoenberg, director of communications for CME Group, operator of the Chicago Mercantile Exchange.
CME Group and Nasdaq are among the first finance-related firms or brands to actively use Twitter. CME Group's Twitter page is managed by Schoenberg, who also has his own profile. A key factor for a firm's successful entrance into the "Twitterverse" is having an evangelist in the corporate communications department.
London-based media relations firm Metia is actively encouraging its clients to embrace social media sites such as Twitter, says Brendan Cooper, social media strategist for the agency. "We are building social media into everything we do, not just as a bolt-on but as a channel of its own like newspapers, magazines and TV," he says.
Wachovia, Bank of America, and North Shore Bank are just a few of the banks that are officially tweeting, mostly to reach out to customers and answer their questions and concerns. Imposters abound on the site, so having an official Twitter presence to monitor the Twitterverse and instruct any brand impersonators to cease and desist, can also help firms limit potential reputation damage, which they would not know about otherwise. Cooper adds that banks in particular could do with some good PR right now and getting their message out via Twitter is a good way to put a human face to an organization.
WHAT IS TWITTER?
Twitter started out as just another social media site for people to share too many things about themselves. The concept is supremely simple-users type in short text messages, or "tweets," of no more than 140 characters in length, not unlike the status update feature on a Facebook profile. They then choose other users to "follow," hope others will follow them back, and gradually build up a network. There are a lot of people who like to use it to announce that they have just finished a cup of tea or that they are having lasagne for dinner. But increasingly-particularly in the last month, it seems-people are discovering valuable business uses for the service.
A large part of Twitter's appeal is the ability to publish ideas and share URL links quickly without the need to write an eloquent and wordy blog post or article. Twitter has thus become an effective news platform-several times over the past year, Twitter users have managed to break news faster than traditional media outlets. The dramatic landing of US Airways flight 1549 in the Hudson River, the tragic Continental plane crash in Buffalo last month, and the terror attacks in Mumbai last November are all examples of stories that were told first by eye-witness tweeters.
Anyone can publish a post and it will immediately be seen by their followers. If a tweet is compelling enough-for example, "Just saw plane crash into Hudson River, NYC"-it will be re-tweeted, or posted again, by people who see it, and then again by their followers, and their followers, and so on. It is not unusual for tweeters to follow people who in real life would be complete strangers. In fact, a study by pan-European telecommunications company O2 late last year found that the use of social media had reduced the usual six degrees of separation to three.
Tweets often contain links to longer online articles and blog posts, but the 140-character limit ensures that posts are concise, and can therefore be uploaded in close to real time and re-tweeted in seconds. Many traditional news outlets, such as the Wall Street Journal, The New York Times, or the BBC, have Twitter profiles and post links to news stories as they are published. Because users are able to see everything written and posted by every person and every traditional news source they follow, Twitter has effectively become a user-configured news aggregation tool that is free-at least, free for now, as Twitter's creators are still deciding how to monetize the site without destroying its appeal.
ENTER STOCKTWITS
Perhaps the most interesting development of all is that traders-institutional, individual and retail-are using Twitter as a research tool to gauge market sentiment, as well as to communicate with others about trends in the market and share relevant news clips. There are so many people using the site to discuss stock, commodities and foreign exchange trading that a new, parallel venture has sprung up.
StockTwits.com was founded by Soren Macbeth and Howard Lindzon in October 2008 in a bid to bring together the financial and investment-minded community that was already using Twitter. Using the Twitter application programming interface (API), they created a parallel site that separates the financial chatter from the rest of the noise on Twitter.
Using a simple tagging method, users' tweets can be organized and streamed to the intended audience. Two dollar signs ($$) at the beginning or end of a tweet tags the message as having a finance-related theme. A dollar sign followed by a stock symbol, for example $GOOG, tags the message as relating to a particular stock. Typing $GOOG in a search will thus bring up all the messages relating to Google stocks, starting with the most recent. The service is as real-time as instant messaging (IM) but offers the one-to-many communication aspect that IM lacks.
Macbeth is an independent currency trader who used to work in IT security, and Lindzon is a hedge fund manager, equities trader and venture capitalist, who was also an investor in TweetDeck, a popular interface for accessing Twitter. There are currently over 14,000 users following StockTwits-you have to follow it to participate-and between 500 and 1000 unique visitors on a given day. It is used by many different types of investors including hedge fund traders, portfolio managers, and individual day traders. "We have everything from institutional traders to individual and retail-even new traders who are trying to learn. They are trading everything from stocks to currency to options to futures," Macbeth says.
"Traders use the site to talk about trades they are making, positions they are getting into, or getting out of, ideas for trades or investment themes. When the markets are open people discuss what is happening in the market at that point in time. When the market is closed they focus more on news gathering, and link sharing and general information exchange," Macbeth says, although he adds that the currency markets never sleep.
Naturally, not all traders would want to broadcast their trading intentions. "If you are running $5 billion, your positions are actually moving the market and if your strategy were to come out and be replicated, your edge might go away. But if you are talking about a really liquid exchange-traded fund (ETF) or a currency, you would have to be extraordinarily big to worry about that sort of thing," Macbeth says.
StockTwits co-founder Lindzon writes in his blog at howardlindzon.com that he hopes Twitter users are able to move markets and contends that what he terms "old media" have been influencing markets for years. "[TV business and finance news station] CNBC moves stocks and markets every day with relentless noise so I look forward to the chance when our best contributors who put [everything] on the line with real money and real-time reputation can move markets. That's the way Wall Street should work, not CNBC hyping secret meetings and stories with 30 minutes left to the close," he writes in a post entitled, Can Twitter Move Stocks?
Many Twitter and StockTwits users choose to be voyeurs rather than actively contribute to the conversation, but it is a good way for traders to gauge industry sentiment by reading what others are saying about various securities, says Roger Ehrenberg, a 20-year Wall Street veteran and one of StockTwit's capital investors. StockTwits, like Twitter, has yet to make money, but Ehrenberg says there is likely to be some kind of tiered subscription, where paying subscribers get increased functionality, but he stresses there will continue to be a free version for those that want it.
A lot of traders use StockTwits as their trading journal or self accountability method to log what they are doing, while others bounce ideas around, Macbeth says. He likens it to the old-school futures pits before everything went electronic: "People used to stand around on the floor shouting the news and their orders back and forth. I think it provides that type of atmosphere-a group of traders talking about the latest news, about who is giving a speech now, or data that has just come out, or a stock they are looking at." Macbeth notes that this has been largely missing from electronic trading, especially for the individual traders who sit at home staring at charts all day.
Users-particularly novice traders-would need to be careful about whose advice they take, however. Anthony Davian, a hedge fund manager, author and founder of davianletter.com and Twitter user, sums up the dangers: "StockTwits is noise in a sea of pundits that know significantly less than any other trader. Never trade what other people say."
The creators of StockTwits are careful to point out they work hard to monitor the user base for pumping and dumping schemes and for anyone that looks like they might be promoting their own interests or spamming their audience. Anyone suspected of these sins is quickly blocked. In addition, the following/followers feature provides a rudimentary reputation score, Macbeth says. If a person provides poor advice or commentary, people will not follow them for long. Thirdly, the site's administrators are able to recommend particularly insightful participants. "We can be star-makers," says Ehrenberg. Once someone has been recommended they can get thousands of new followers overnight.
COMPLIANCE CONCERNS
As with any new technology there are compliance issues to consider. Firms regulated by the Financial Industry Regulatory Authority (FINRA) that sell securities to retail investors must be very careful about what information or advice they broadcast over Twitter, says Doug Cornelius, chief compliance officer for a real-estate private equity firm, and avid tweeter.
FINRA has specific but possibly out-dated guidelines for the use of social media. Publicly available Web sites, including blogs, are considered advertisements, while an e-mail or instant message sent to 25 or more prospective retail customers is considered sales literature. An e-mail or IM is considered correspondence if it is sent to a single prospective or existing customer, to an unlimited number of existing retail customers or less than 25 prospective retail customers. Password-protected Web sites are considered sales literature and chat room discussions are considered public appearances. A site like Twitter could fall under the definition of an advertisement, sales literature or a public appearance, Cornelius says, so FINRA-regulated firms should be very careful what they post.
Institutional brokerages, as well as hedge funds and other buy-side firms would have less of a regulatory problem. Compliance concerns for these firms would be similar to those faced when e-mail and IM were introduced on the trading floor, Ehrenberg says. He adds that Twitter provides easy access to past messages so it is not difficult to retrieve messages posted by any user at any time. The only thing it doesn't really provide is the thread of the conversation.
Securities firms-like most other firms-are only starting to get their heads around Twitter and related services such as StockTwits. It is mostly being used under the radar by the younger generation of traders, says Macbeth. Some firms have banned the tools outright and some are simply unaware of their use, he says. Others don't understand it and dismiss it out of hand as something that is not useful and a time-drain. But Cornelius says there is no point banning Twitter outright as people can access it easily from home or from their mobile phones. Ignoring it won't make it go away, either. Firms should focus on developing a policy and educating their staff, he says. -->