While being incredibly entertaining, Twitter can be a trove of rather useless information. Of the over 400 million tweets sent every day, very few have any real effect other than to help followers pass the time. But hidden beneath rather mundane celebrity tweets about hairstyles and shoes are 140-character messages capable of moving markets. Always looking to gain that edge, traders and hedge fund managers have begun relying on Twitter as a critical component in their decision-making process.
More than anything, Wall Street has begun using Twitter to troll big names in the industry. Steven M. Cohen, managing director of education consulting firm Wall Street Trading, says that Twitter use has become “very prevalent” among traders, particularly when it comes to identifying ideas being generated by others in the industry and what stocks they are watching. Big names capable of moving markets – such as Carl Icahn and Bill Gross – are now on Twitter. Even 83-year-old Warren Buffett has a Twitter handle.
Many firms "talk up their book" and pump their ideas using Twitter, said a New York hedge fund manager who asked to remain anonymous. Others use that information to influence some of their own decisions, she said. Many analysts have also joined Twitter to promote their work. And just recently, the U.S. Securities and Exchange Commission announced that companies can use social-media sites to share market-moving company announcements.
But Twitter use on Wall Street goes well beyond just following specific people. It’s also capable of being a robust data-mining tool if used correctly. “Some funds may be looking to collect large amounts of data so they can pick up on any cues that can affect names they hold, investment ideas they should look at, or anything else that may affect their portfolios,” said Ross Baltic, managing partner at Mercury Partners, a New York-boutique search firm that works with hedge fund clients.
One sell-side trader who asked to remain anonymous said that Twitter has become just as important as Bloomberg terminals when it comes to research. “I use it as another set of eyes on breaking news and market moving data,” he said. “I follow guys who post all pertinent headlines within seconds of the news hitting tape – Zerohedge, Seeking Alpha, NY Scanner. It helps me filter out the noise.”
To truly understand the power of Twitter on Wall Street, just look at what happens when tweets are misinterpreted or just plain inaccurate. In April, someone hacked the Twitter account of the Associated Press and tweeted that President Obama was injured in an attack on the White House. The Dow plunged 140 points before the tweet was redacted.
Two months ago, oil traders who follow the Israel Defense Forces Twitter account saw a tweet about airport bombings in Syria and took action, sending oil prices skyrocketing. Unfortunately for them, the tweet was commemorating the 40th anniversary of the Yom Kippur War of 1973. Traders who followed the account took a bath on their investment.
A similar incident occurred in 2012 when someone purporting to be Russian Interior Minister Vladimir Kolokoltsev tweeted that Syrian president Bashar al-Assad had been killed or injured. Oil prices climbed by more than $1 before anyone knew what happened.
With an IPO looming, and as more firms and financial leaders use the site as a pulpit for influence, Twitter will only gain in prominence on Wall Street. Whether or not that is a good or a bad thing has yet to be determined.