Social media have become a very popular medium and arguably a relatively untapped source of potentially useful intelligence for commodity businesses. Twitter and industry expert blogs are already utilized in other asset classes, such as equities, to provide traders with both trading signals and sentiment analysis.
Unfortunately, the flood of data and information pouring onto and out of platforms such as Facebook and Twitter – with the vast majority of it being nothing more than “noise” comprised of uninformed opinions, unfounded rumors, and personal experiences – can limit its appeal and usefulness to commodity trading professionals. However, given the ubiquitous nature of social media, its potential value cannot be dismissed. Social media, is now, in almost all cases, the first source to identify events or trends that could impact demand or availability of commodities – such as localized severe weather events and other emergency conditions tweeted by residents or first responders. Events such as industrial accidents, civil unrest or transportation disruptions in a producing area can impact commodity production, deliveries or demand…with knock-on effects on price movements or contractual deliveries.
Recognizing the potential value of social media as an information source, there are a number of companies offering social media derived data products – and a number of generic news platforms are now incorporating these tools. Additionally, software products are now available to help traders make use of social media, including tools to automate trading based on sentiment analysis.
Social media platforms, like Twitter, along with conventional news sources and unconventional news sources like blogs, can have value in sentiment analysis and in identifying buy/sell signals, especially when used in combination with traditional data. However, separating the noise from the valuable signals requires filters, such as the ability to know what keywords to track and where to track them. Without dedicated tools, this task would be, at worst, impossible or, at best, not cost effective.
ComTech does expect social media to play a future role in the commodities industry particularly around sentiment analysis and near real-time incident identification. However, despite its potential value and the attention that social media has garnered over the last decade, relatively few respondents (to our disruptive technologies survey – only 39%) indicated that their businesses are currently interested in social media data mining.
Does your firm have an interest in social media for data mining? Do let us know.
This excerpt is taken from Disruptive Technologies in Commodity Markets report, 2018, Commodity Technology Advisory LLC. Kindly sponsored by FIS