New trading platform to harness social media

MANILA, Philippines – Can social media make or break an investment? The world will soon know with the launch of a new trading platform that aims to predict market movements based on moods of Twitter and Facebook posts.

London-based DCM Capital on Monday, January 14, will launch an online trading system — the first of its kind — which will harness social media sentiment toward stocks, currencies and commodities.

The new platform, to be called the “DCM Dealer,” is based on an algorithm developed back in 2011 by little-known hedge fund Derwent Capital Markets, founded by Paul Hawtin, CNBC reported Friday, January 11.

The system is based on studies made by researchers in the University of Indiana.

“Today, social media creates a vast amount of information and it has been proven that the sentiment derived from it can predict stock market movements. For the very first time, we are connecting this information source to the trading community, opening up the universe of social media data so traders can make more informed buying and selling decisions,” Hawtin said, as quoted by Financial News.

In the system, sentiment ratings from 0 to 100 will be assigned to assets being traded, with 0 being “very negative” and 100 “very positive.”

Financial News added that the platform will start with “250 UK equities, major FX pairs, as well as commodities contracts,” with Hawtin eyeing the inclusion of pan-European stocks within weeks, followed by US and Asian equities.

The system was a year in the making, said Hawtin, after a “lengthy” regulatory review in the UK.

However, he told CNBC that this new platform is not a “holy grail” for people wanting a guaranteed indicator if they will buy or sell in the market.

“This is an additional layer of market information…markets are driven by greed and fear, so if you can understand fear and quantify it in real-time, you could use that to protect yourself,” he said. – Rappler.com