Social media trading goes live on DCM
DCM Capital provides a social media feed for traders
Online trading service DCM Capital has released a trading platform with a social media sentiment feed, allowing traders to incorporate information from channels such as twitter and Facebook into their trading decisions.
The service works by using an algorithm to derive sentiment ratings for stocks, indices, FX and commodities. The data is validated and assessed based on its relevance, source and bias to produce a score between zero (very negative) and 100 (very positive), so that it can be plotted on a chart. The service runs in real-time, so users can watch the chart over time and see market trends.
“It has been proven that the sentiment derived from social media can predict stock market movements,” said Paul Hawtin, founder and chief executive at DCM Capital. “For the very first time, we are connecting this information source to the trading community so traders can make more informed buying and selling decisions.”
The idea that social media may influence stock prices has been around for years. Likewise, DCM Capital is arguably not the first firm to develop a tool that maps the impact of social media on capital markets. In November last year, Bloomberg demonstrated an app built by French company IoSquare that had just been released on the newly launched Bloomberg App Portal.
The IoSquare app, Social Media Indicator, aggregates social media posts relating to certain stocks or indices and uses them to derive a “sentiment index” for each stock. The ‘sentiment’ can then be plotted on a graph against the actual price of the stocks. In a demonstration seen by Banking Technology, the rise and fall of sentiment on the ‘twitter’ index sometimes preceded the rise and fall of the actual stock – apparently validating the suggestion that, in some cases, social media may be impacting actual price valuations.
Besides social media, the new DCM platform also uses news from Bloomberg and other sources. The service includes the ability to set user limits and receive alerts via text and email when those limits are reached, and a deal ticket wizard that attempts to explain the trading process in plain English.
“The big benefit is that our sentiment rating adds another risk mitigation dimension to trading,” said Hawtin. “If users see a downward movement in the sentiment rating of a stock in which they are perhaps slightly overweight, they can immediately hedge their position. If they see the attitude surrounding a stock change for the better, a buying decision can be made based on more information than ever before.”
Despite the popularity of social media tools at DCM and the Bloomberg App Portal, German IT firm GFT released a report in December which argued that most financial institutions are not using social media to its full potential. According to GFT, tools like Facebook, twitter and LinkedIn contain useful customer data should be used to provide better products and services to clients. Meanwhile, in November, a report by consultancy Ctrl-Shift argued that banks must learn to use information services to provide value to their customers, or face the prospect of disintermediation by newer, quicker firms.
UK company DCM Capital was founded in 2008 and is based in Butler’s Wharf, London.
