Knowsis Offers Social Media Sentiment Data to Support Trading Strategies

Knowsis Offers Social Media Sentiment Data to Support Trading Strategies

Start-up data and analytics firm Knowsis is working with an initial five clients to incorporate its social media sentiment data into their trading strategies. The company declines to name the clients, but says one will go live imminently with strategies built around signals from Knowsis data, while others are considering how to add sentiment data as an additional parameter to their strategies.

London-based Knowsis was formed as a private company in January 2012 with seed investment from Method Investment and Advisory, a funds and quant trading house that Knowsis can also work with to develop and check its concepts. Knowsis’ founder and CEO Oli Freeling-Wilkinson is joined by chief technology officer Mark Unsworth, a technologist and developer most recently working with online music company 7digital, and two further employees.

The company was conceived by Wilkinson in 2010, when there was little financial market recognition of the potential of social media, but he says the question now is no longer whether social media is important, but how to use it. He adds: “Any quantitative trader, hedge fund or risk manager should be interested in data that is proven to help make decisions and money.”

While the company isn’t naming names – its own is based on gnosis, the Greek noun for knowledge – it has worked with quantitative funds to test the use of social media sentiment data in trading strategies. The tests were based on a portfolio of stocks, with each stock being given a sentiment rating based on social media activity and simple trading strategies then being devised. The company says all trading strategies in the test generated returns above those achieved by major indices over the same time period.

Knowsis’ methodology is based on one overarching question: will sentiment make a difference to asset prices? With this in mind, its analysis identifies underlying behavioural trends rather than supporting a ‘trade by tweet’ approach.

The company initially considered using third-party sentiment data systems that are frequently used by large consumer brands to support its service, but found these lacked financial relevance. Instead, it has built technology from the ground up to mine, manage and analyse vast quantities of data produced by social media. It uses scrapers and similar technologies to gather data and filters about 1% of Twitter’s 400 million daily tweets using in-house built algorithms designed to identify Tweets that have financial relevance. It also looks at Facebook, but only to a limited extent as it is a closed system, and scans further blogs and forums that it chooses not to name as it fears malicious activity could skew results. The platform is data agnostic, meaning any social media source could be used to feed the algos and it also includes a machine learning element.

Once data is collected, a sentiment analysis tool is used to aggregate underlying behaviour around an asset and the asset is given a number on the scale of -100 (bearish) to +100 (bullish). A list of securities, predominantly macro assets and some stocks, and their sentiment scores is then made available to users via an application programming interface that is updated in real time, although Knowsis notes the volatility of intra-day conversation and prefers to promote end-of-day aggregated sentiment data that can be validated and checked for false or misleading information.

The company is working across financial markets and includes high frequency, low latency traders that pick up signals in real time, but its drive is towards understanding rather than speed. Wilkinson explains: “Knowsis is not about ultra low latency delivery, but about longer term underlying behaviour trends. The aim is for end-of-day data to be used to project how certain asset classes may behave during the next week.”

With five clients in its portfolio and R&D ongoing, Knowsis’ next plan is a sales push and a search for specialist market data partners that can distribute its social media sentiment data on a global scale.


Social Trading : What We Can Learn From 50 Million Trades : 50 Million Traded Positions At eToro Establishes Social Trading As An Investment Alternative

eToro, the world’s largest social investment network, has reached the major landmark of 50 million trades by its users. This number shows the success of the company’s vision of making the financial markets accessible for everyone to trade in a simple and transparent way.

via Pocket May 23, 2013 at 07:52PM

Will corporate actions survive social media?

While corporate compliance departments are still coming to terms with all the regulatory changes springing forth the implementation of the Dodd-Frank Act, the US Securities and Exchange Commission (SEC) threw a curveball to the industry in early April by approving social media as a distribution channel for corporate actions announcements.

“Most social media are perfectly suitable methods for communicating with investors, but not if the access is restricted or if the investors don’t know that’s where they need to turn to get the latest news,” says George Canellos, acting director of the enforcement division at the SEC.

The announcement stemmed from the regulator’s decision not to seek sanctions against Netflix CEO Reed Hastings or his company regarding a posting made by Hastings to his personal Facebook account, which may have violated Regulation Fair Disclosure (FD). 

In the Facebook update, made the day before the July 4, 2012, holiday, Hastings shared that Netflix had streamed over a billion hours of content to its customers the previous month. If Netflix had shared the same information with its investors via a press release posted on the Netflix web site or in a Form 8-K filing, which announces material corporate events, there would not have been a problem, but they did not.

Instead the regulators took the opportunity to inform listed companies that the Commission’s 2008 guidance on the use of web sites to communicate with investors is “equally applicable to current and evolving social media channels of corporate communications.”

Trends ahead

Industry watchers, such as Virginie O’Shea, an analysts at industry research firm Aite Group, expect to see similar announcements being made in the future as financial organisations may not be aware of the announcement and are still learning how to mange the use of social media internally.

“Many major institutions have banned the use of social media sites for this very purpose,” she says. “They are aware that there could be a legal ramification for staff members tweeting things that should not have been tweeted. It also has resulted in a number of people being sacked.”

Yet ignoring social media is not a likely option since it is “an inevitable evolution in how people communicate,” explains Cromwell Fraser, director of strategy and business development trading floor industry at communications surveillance provider Nice Systems. “First there was voice, then e-mail, then instant messaging and now social media.”

For those investors who require corporate action updates delivered as quickly as possible, adding another distribution channel may speed an updates delivery, but it may come with a cost.

“There are no common taxonomies to use for social media,” says O’Shea. “Organisations are opening themselves up for a risk of misinterpretation if they are limited to Twitter’s 140-character message limit.”

The ever-evolving spelling and grammar found on some social media sites also might prove challenging for those tasked to collect, scrub and deliver corporate updates, she adds.

This is not a major issue, according to Fraser whose firm already supports surveillance of various social media platforms.

“Since social media updates usually are text-based like email and instant messages, view them as just another data stream that we capture, grab the stored elements and surveil them,” he explains.

The difficulties come with how the wide range of social media platforms aggregate user content and manage who may view it. It is not a one-size-fits-all proposition, according to O’Shea. “The US might face the same issues in capturing corporate actions currently faced by other regions, such as Asia, where they lack a common format to release corporate actions.”

Opening the can of worms

Integrating social media into the existing social media corporate actions channel is more of a process than a technology issue for most financial organisations, according to the experts.

“Except for some marketing functions and a few corporate communications professionals who do a good job using social media, a majority of the capital markets industry are just beginning to understand social media,” says Aite’s O’Shea.

“It still very early days,” agrees Nice’s Fraser. “Those who will embrace social media, learn it and use it will be successful,” says Fraser. “Those who will not will have problems and will put out rules and guide lines that will not work with this new media.”

Fraser knows of a few forward-thinking companies that already are dabbling with social media use in a few of their business units to get the process right before deploying its use further.

Typical early projects aim to keep corporately controlled Facebook pages and Twitter accounts in line with other corporate communications channels.

Yet, the conversation often turns to the feasibility of whether companies will be able to monitor the private accounts of its employees to avoid Regulation, FD infractions, says Fraser. “From a technological perspective, a firm could monitor an employee’s Facebook account, but the surveillance service would need to be contracted in by Facebook and the affected users would have to grant their permission.”

Addressing this overlap of professional and personal communications will keep compliance and legal departments busy for the foreseeable future and may lead to a future bifurcation of social media between strictly professional and personal communications, he adds. 

Rob Daly

Bloomberg adds real-time tweet stream to market data desktop

Bloomberg Professional service subscribers can now monitor and analyse real-time Twitter updates issued by corporations, executives, government officials, economists, commentators, media outlets and other voices that can influence the financial markets.

via Pocket April 04, 2013 at 05:12PM

SEC moves to clarify social media rules

Under the rules, mutual funds and other investment companies are required to file certain advertisements for review by the Financial Industry Regulatory Authority (Finra).

via Pocket March 18, 2013 at 07:07PM

Nyse Technologies turns on social media hosepipe

From this quarter Nyse Technologies will be the exclusive reseller of the SMA (Social Market Analytics) patent-pending Sentiment Signature Feed social media monitoring engine.

via Pocket February 14, 2013 at 06:41PM

DCM Capital auctions itself on line – starting bid £1

“At DCM Capital we do things differently. Twelve months ago we put a team together to build the world’s first social media, investor sentiment analysis trading platform. With a budget of £350k and a team of 6 talented developers we achieved our goal, on time and on budget.

via Pocket February 04, 2013 at 07:08PM

How traders can mine social media data for greater financial returns – Posted by Alastair Turner, Aspectus PR on Jan 24, 2013

To some, Twitter, Facebook and other social media sites are simply forms of staying connected with friends, family, and the latest news stories. However, a group of tech-savvy entrepreneurs is emerging that see the vast potential in the data generated by social media. And the opportunities appear vast. From marketing companies to discount websites, entrepreneurs are mining the intelligence created by social media to deliver a superior service, although not all markets are embracing it.

Certain parts of the financial services sector still hold the archaic view that social media just isn’t for them. However, a number of firms are opening the industry’s eyes to the value that it can provide.

DCM Capital is one of these firms. It has developed a trading platform that capitalises on the relationship between the price of instruments traded on the financial markets and the mood on social media. The correlation was originally proven through research conducted at Indiana University. DCM Capital has put this theory into practise and, by analysing the mood on twitter, is able to provide an additional layer of trading intelligence to the retail investment community.

Innovation of this kind is a story in itself. However, careful thought is required to give this ingenuity the exposure it deserves. This involves a communications campaign that not only creates significant buzz around the product, but also highlights the impact of such a ground-breaking idea on the wider industry. Strategy, creativity and market expertise are all essential; as is the ability to identify key influencers.

Originality will always spark discussion. And people will always criticise new ideas. Preparation is essential. Ensuring key arguments are carefully crafted and spokespeople are equipped with the necessary facts and supporting data will ensure that they have the confidence to stand up to the opposition.

Building a recognisable brand is an ongoing process. However, there are steps that can be taken to firmly plant you and your ideas on the map. By keeping communications to the point, engaging and consistent, your relationship with the market will blossom. And as your brand recognition increases, so will your sales figures and business performance

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