Specially programmed computers are being used by stock market experts to analyze news media sites, blogs and even social media networks like Twitter to determine the right time to buy or sell.

 

For instance, Dow Jones has a program that scans the Web for key words like “ingenuity,” “winner,” “litigious,” “colludes,” and “risk” to make recommendations on trades.

 

Bloomberg monitors Twitter feeds and alerts its customers if a significant number of people start Tweeting about a company, such as IBM. Lexalytics, a text analysis company, has created algorithms that not only assess the words in Twitter messages but also emoticons like J and L.

 

These computers and programs have the ability to move markets in powerful ways, such as identifying the word “abyss” during the financial crisis in Greece and then initiating sell orders on bonds that were affected by the event.

 

Unfortunately, this new trend is one more example of a technological advance, like “flash trading,” that gives the biggest investment firms an advantage over normal companies. And there is more to come. Adam Honoré of Aite Group told The New York Times that some stock traders are already using software that analyzes public statements by corporate executives to determine whether they are telling the truth or lying.

-Noel Brinkerhoff, David Wallechinsky

 

Computers That Trade on the News (by Graham Bowley, New York Times)

How Goldman Sachs Made $100 Million a Day in a Flash (by David Wallechinsky, AllGov)