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Apr 19, 2013 ||
Allan Schoenberg ||
Welcome to OpenSource – our new feature on OpenMarkets where we discuss technology and innovation with thought leaders and the various ways information, data and platforms are influencing financial markets. Today, we’re speaking with StockTwits founder Howard Lindzon on his company, the markets and the future of social media.
In early April, the SEC announced that social media could be considered as appropriate platforms for companies and individuals to disclose material information. This announcement was shortly followed by a Bloomberg announcement that it would now pull Twitter feeds into its terminals.
Back in 2008, an idea was launched that has been the forerunner sharing financial information via social media – StockTwits (NOTE: CME Group has been a sponsor of StockTwits since 2008). Founded by long-time investor Howard Lindzon, Stocktwits created the $TICKER symbol in order to help organize information around stocks, futures and currencies across the web and social media. Today, more than 200,000 investors, market professionals and public companies, like CME Group, share information and ideas about the markets. Lindzon also is a regular blogger and even weighed in with these thoughts on the recent SEC announcement and Bloomberg news.
For our inaugural OpenSource feature, we caught up with Howard Lindzon to talk about StockTwits and how it has transformed finance.
Explain the concept behind the Stocktwits community? What is and how does it work?
Stocktwits is an extension of my passion for stocks and markets. I love writing and it has made me a better investor so I keep writing. Stocktwits is an extremely light way to journal your financial ideas and mood. I think of Stocktwits as a human ticker, a real time pulse of markets and an indespensible sentiment machine. Anyone can use StockTwits to catch up fast or dive deep into open analysis and debate.
At any single moment, there are thousands of eyes scouring the market for different ideas and commenting on relevant topics. Usually the most interesting ideas and themes are noticed by more people and show up on our trending tickers.
StockTwits works differently for everybody. It is a tool and how you are going to use it depends on your level of market expertise and goal. It you are a novice, StockTwits is a great place to learn how to properly trade or invest by following the thought process of seasoned professionals and asking questions.
If you are an expert, StockTwits is a great platform to be noticed and build a reputation by sharing your smart ideas and comments. There are benefits for everyone. It is a win/win platform.
How did the idea for Stocktwits come to be?
I was introduced to Twitter in 2007. Back then, there were like a thousand guys in the whole world using it. I started riffing ideas and just probing others on the platform as the early adopters were all very smart influencers themselves.
We started tagging stock symbols with the $ sign and grow a community through the word of mouth. A bunch of us were already blogging, linking and commenting, so StockTwits became a natural new platform to engage in real-time and real-time matters in finance.
What was the biggest technology hurdle you had to overcome in launching Stocktwits?
I think the biggest hurdle is just making everything work in real-time. The continuous grind of curation and building tools to help the community curate remains the hardest part. People can be mean when money is involved (laughs).
Making sure we can deal with the high fluctuation in traffic is always stressful, especially around earnings season. We are ‘too small to fail’, so we can’t afford to show people “the Whale” once a week as Twitter had been doing as they grew early.
You’ve been involved in the markets for a long time. How has social media changed the way you view information and investing?
If you are paying $2000 a month for a Bloomberg Terminal, you are not getting your information faster than someone who is using StockTwits or Twitter. Information is a commodity nowadays. What matters is context. Yes, unemployment is down 1 percent, Google grew last quarter’s earnings at 40 percent or the number of housing startups is better than expected, but what does it mean for you as an investor? Social media has given people access to experts – people who actually trade and take investment decisions on that information and are willing to explain their thought process in real time. This is priceless for anyone who wants to learn the language of the market.
Futures markets remain a very important way for institutions to manage risk. What do you think is most misunderstood about futures?
Leverage. Many forget that it is a tactical tool, not a strategy and can cause a lot of damage when proper position sizing is not considered.
Also, today there is an ETF for every country and commodity in the world. Ten years ago, people didn’t have access to that. Most people feel more comfortable using ETFs than straightforward futures despite the extra fees associated with the former. It is a matter of better educating people. Education as a giver and receiver, takes patience and lots of time. Technology helps speed things up and the social web has accelerated everything. This is great news.
Why do you think the financial industry has been slower than many other industries in embracing social media?
Wall Street doesn’t change unless it has to change and the story of social media in finance has not been any different.
Big Wall Street firms have always been secretive machines, reluctant to change and many of them still don’t know how to properly use social media. The incentive to cheat is high and unfortunately there are no simple answers. We are regulating for the many because of the few bad eggs. It is a sad and stressful fact of the financial systems.
Making predictions is difficult, but we’ll put you on the spot and ask you to give us your views on the future of social media and the markets – what should people interested in the markets being think about in the coming year or two from social?
Social media is a tool and it is your choice to use it or not. For some people it will be poison, for others it will be a panacea. It all depends on how you decide to use it and how much time are you willing to devote to learn how to use it properly. You could use it for gossiping, finger pointing ego and bullying, and you will lose in the process of doing so or you could be smarter and use it to accelerate your learning curve and get great ideas from other passionate traders and investors and build a competitive advantage by sharing.
The social trend is relentless and accelerating. I think the term social media will fade as media is not a meaningful word for the phenomenon. I call it the social web and the power of social leverage. The financial leverage was our last boom and bust, the social leverage boom is more interesting because it touches more people and industries.
Going fast is addictive. The social web allows us to speed up. Finance and markets are no different. While social and finance have lagged, when it finally gathers the right momentum, it will speed past the other areas of the social web because of the profit potential.
Allan Schoenberg is Executive Director of Corporate Communications at CME Group.
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