How will social media applications help capital and financial markets?
Social media has the potential of making disruptive changes to many business interactions. There are two fundamental aspects of social media which make it a highly promising trend for the capital markets industry. At first, it enhances the efficiency of information dissemination through viral propagation. Secondly, it helps in the analysis of data or text available on social media can be used to derive valuable inputs for decision making, opening up of new markets, hiring new age skills and the like.
For example, it can predict stock prices. Research studies have indicated a strong correlation between social mood and stock prices. Social mood is found to be a lead indicator of the stock prices. The volume of data posted on a daily basis on the social media is huge. Online brand popularity has also been found to be a lead indicator of the stock prices.
It also helps in retail trading. Unlike professional traders who do not want the market to know their positions and trading history, the online retail traders treat information sharing as a valuable asset. Social media can help in analyzing the trend. This requires an application which is able to understand the association between words. That said, credible sources of information from social media should be considered for analysis.
Is there enough clarity among Indian organizations on how to integrate social technologies with their existing set-up?
India is experiencing the onset of social technologies and is in the process of integrating it with the existing set-up. Having said that, the country is yet to experience a social networking platform coupled with an integrated trading platform which can make the entire trading process highly efficient.
This kind of deployment requires huge amount of technology infrastructure and investment; and we are yet to experience such kind of investment in the technologies when it comes to India. Hence, it is still concentrated in the hands of few agencies. Another reason is that all stocks are not available on social media which is another gray area for the Indian trading ecosystem.
What are the popular tools specific to trading markets which can help derive meaningful information from social media?
Online foreign exchange trading website like www.currensee.com allows the users to build communities to share and discuss trades. On this platform, the retail forex traders around the world can share their real trades in real time. It allows you to build trading friends based on trading profile. The users can then collaborate with their trading friends. On similar lines, Zecco’s Wall Street, which is a Facebook application, gives the users the ability to like a stock, thereby giving the ability to stay tuned to stock’s latest development. One can also see the stocks which are liked by friends, etc. In addition, the users can place the orders right from Facebook.
Stocktwits allows the users to participate in a global community of investors and traders, get information and ideas on stocks. The users can connect with investors and traders of similar profiles and follow them. In addition, the user can share ideas and trades with a wider community and get feedback. These applications are more suited for retail investors but on the institutional side we have news analytics applications from vendors such as Reuters, Raven Pack, etc.
What does the future look like as far as the applicability of social media in the trading market is concerned?
Social media adoption in capital markets industry is going to increase. As a platform, it helps in efficient dissemination of information which makes it a very compelling proposition for this industry. Some participants have started adopting social media in their business interactions. Even if there are compliance related challenges, the benefits resulting from social media adoption far exceed the bottlenecks.
With the popularity of social media growing exponentially in this space, the exchanges are not too far behind. CME Group, one of the world’s biggest futures exchange company has over 750,000 followers on Twitter. NYSE Euronext has close to 245,000 followers. In India, NSE became the first exchange to have a presence on Twitter. Exchanges and indices across the globe have established a strong presence on the micro blogging site.
All participants in this business are coming up with a plan to use the power of social media in their business. Benefits of social media are best achieved only when there is active participation from all participants. Social media has built enough momentum in the last few years and now it is not possible for any firm in this business to be completely out of it.