American Consequences - January 2018



Over the last five to 10 years, we’ve seen a transition toward social media – Twitter in particular – and chat rooms as a major source of information for the financial markets. Digital communities exist where like-minded traders and investors can interact with each other and share recommendations and ideas. Today, access to real-time updates and market news is an integral part of trading stocks. Social media has become a key element of the “mosaic theory” of investing, which involves collecting public and private data and information to determine the value of a security. I spoke with several investment professionals who told me they’d have a difficult time being as productive and effective without social media, but using it intelligently has become a necessary skill set.

But a trader’s use of social media doesn’t come without risk. The Internet is an open source, full of “experts” who tout their opinions and spread rumors. And very often the information is “managed” before it’s even delivered. The provider of information controls what – and how – content will be told. Depending on the size of the audience, misinformation can result in catastrophic losses. And when everyone is trading on the same information, there’s little money to be made. Some consider the role of social media in trading to still be in the early stages, but there’s no doubt that it’ll continue to be a primary source of information. It’s become widely accepted and considered a necessary part of the equation. Chat rooms have become a way for traders to find new information outside of the mainstream. They are often filled with market observations, rumors, and trading ideas... And an active chat room can sometimes have as many as 2,000 members. The information flows all day, every day. So whereas social media has played a major role in providing and spreading information, it also transcends it. Many hedge funds and savvy investment professionals mine the data on platforms like Twitter to forecast future stock prices. The collection of data is analyzed

Turney Duff is a former trader at one of the biggest hedge funds in the world, the Galleon Group, where its founder and several Galleon employees were found guilty of insider trading. Turney rose through the ranks and then fell prey to the trappings of Wall

Street: money, sex, drugs, alcohol, and power. Turney chronicles his spectacular rise and fall in his bestselling book, The Buy Side: AWall Street Trader’s Tale of Spectacular Excess .


January 2018

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