Twitter and the High Frequency Trader

Rumours that Twitter is in advanced talks with Google and Microsoft about striking data mining deals has resurrected speculation about the use of the microblogging site as a high frequency trading tool.

Citing sources familiar with the situation, Allthingsdgital blogger Kara Swisher says Silicon Valley's hottest start-up is deep in discussion about seperate multi-million dollar deals to license its feed for use in the Google and Microsoft search engines.

Last month Twitter raised $100 million in new funding giving the platform a potential valuation of $1 billion, even though it has yet to start generating any meaningful revenues.

The story has been picked up by Reuters' blogger Alex Salmon who asks: "If the Twitter firehose is worth millions to a search engine, how much would it be worth to algo traders and data miners?"

He goes on to wonder how much of a premium HFTs would be willing to pay to get that information a few milliseconds before anybody else.

"Would they be willing to pay Twitter a huge amount of money just for the privilege of hosting its servers in the same location as their own proprietary stock-trading black boxes?"

The idea has been shouted down in the comments stream. One poster says: "Filtering all those tweets for meaningful information would be like sifting through a garbage dump looking for a ring."

In June, Streambase Systems announced plans to hook its complex event processing (CEP) platform to the microblogging site, providing traders with a new source of news and information.

Mark Palmer, CEO of StreamBase says trading systems or operations support can use Twitter direct messaging to alert users of opportunities or system problems.

"Systems can also use Twitter messages to assess economic sentiment in real-time for trading systems, or marketing analytics, through monitoring news headlines and popular sentiment transmitted via Twitter," he adds.

Here at Finextra, we see little to change our verdict from that time: "It's good to see the tech-heads in the trading community looking to utilise Twitter but the microblogging site is a notoriously unreliable source of information. With wild speculation swirling around, its difficult to see how traders can block out the noise. Indeed, unscrupulous Twitterers could use the technology to deliberately spread disinformation. This is already happening in the political sphere, further blunting Twitter's effectiveness even as a broad sentiment indicator."

That's not to say we don't see the value in Twitter as a beneficial medium for exchanging ideas and generating conversations with our worldwide membership. On the contrary. We've been running our own Twitter feed now for over a year and have plans to step up our activity in the Twittersphere and further exploit the service for Finextra Community outreach projects in the near future.

You can follow us at twitter.com/finextra.