The Twitter-sphere is alive with news about…. Twitter. The company sent out a brief tweet that suggests the micro blogging site is about to embark on an IPO. Details so far are scant, including the size of the share offering, when it will take place, and, most importantly, how much Twitter is worth. An educated guess is that the market would value Twitter at many tens of billions, after all Facebook is worth nearly $110bn after its share price reached a record high recently.
How the market values Twitter and how much value the average day trader gets from Twitter are very different things. Twitter has been around since 2006 and in recent years it has been used as an outlet for financial news websites, research analysts, brokers, etc., desperate to give you their latest deal and/or market news and trade ideas.
There are many advantages to this; if you follow the right people then you can get the latest key economic data releases, breaking news and central banker comments as quickly as you could on a costly Bloomberg terminal. There is no doubt that Twitter is a step forward in the evolution of information democratisation. However, this does not mean that Twitter is always a useful resource for traders.
The problem is the sheer number of people who tweet. I follow more than 200 people and am deluged with the number of tweets they post throughout the day between them. There are literally hundreds every hour. Twitter has said there are, on average, nearly 30m tweets posted each day. This is a mind boggling amount of information in 140 characters.
A tweet can often come with a link that takes you back to someone’s website to read more about the story. My problem with this is two-fold:
- It can leave you with multiple tabs open on your web browser, with so many stories spread across them you will never get a chance to read them all.
- It can be distracting – if you are reading tweets, clicking on links and photos then it can make it harder to place that trade as you find you haven’t the time to put that great idea into action.
The reverse of this argument is that the more information there is the better. Some companies have made the Twitter experience easier by filtering tweets by topic or by alerting you to what is trending on Twitter. So, for example, if there has been news about the price of gold, then it will flag this up to you. This is a genius idea that makes Twitter useful for traders. Obviously some of these trends can be false or misleading and you have to remember there is no way to vet everyone who posts on a certain topic to check they are solid, but it at least puts some order around tweets, which makes it easier to get ideas.
But in the absence of filters and trend spotters Twitter can be nothing more than a giant warehouse of thoughts and musings, where valuable nuggets of information that day traders crave and need are hidden from view.
My advice to traders that use Twitter as a research resource is:
- Know the limits of Twitter and try to use a filter or trend spotter as this will sort the wheat from the chaff, and
- If you tweet know your own limits. Don’t try and tweet continuously on market events as this can lead to even more disjointed, unhelpful information on the web.