Social media has penetrated the world of commerce and its consequent dominance has forever changed the business landscape. The speed at which information is disseminated through Twitter, Facebook, et al. surpasses that of traditional media and, aside from the factual reporting, they allow for expression of opinions, perspectives, and commentary on relevant events as they happen.
Commodity trading has not been immune to the influence of social media. Here are some challenges the market has to face:
1. Data from social media reveal trends and movements in the stock market. Investors and financial companies now turn to Twitter to learn the general sentiment of the masses about a company. Events detection and alerts show up on social sites hours or even a day before they are reported in traditional media. Business intelligence companies like Dataminr, Sisense and Looker are utilized by commodity trading firms to provide them with data from social media and other public sources to help in their decision making.
It is worth mentioning that the importance of using these companies is the real-time information they provide. Traders who track the market or companies by themselves via Twitter or Facebook may not be alert to the freshness of the data. This is an oft ignored item that can lead to erroneous decisions. Stale data loses its relevance, as markets can change quickly.
2. Decisions must be made more rapidly. With more than 350,000 tweets coming in per minute, the simultaneous buying and selling of stocks and commodities in different markets does not have the luxury of time for completion. As real-time information comes in almost in an instant, trading decisions must be made accordingly.
3. Opinion in commodity trading posted in social media can determine the rise or fall of the price of a commodity. Prevalent sentiment on the supply of oil or precious metals, for example, or factors such as weather conditions or diseases affecting agriculture and meats can influence demand and prices. This data is often found in social media before there is a change in the prices of commodities.
For individuals who plan to go into commodity trading, it is advisable to be updated on the trends in the market, especially in its digitalization. You can setup an account and familiarize yourself with the different platforms and choose a suitable one before transitioning to a live account. You can also watch how successful traders work and copy their actions.
4. Likes, company page views and mentions on Facebook and YouTube can be a good forecasting tool for the performance of individual stocks and markets. Twitter with its micro-blogging feature is more effective in showing real-time emotion and makes data mining easier. Research has shown that the quantity of tweets and posts with positive emotions, likes and views is directly proportional to its performance on the market, just as negative sentiments, measured in specific words or messages, can have an impact on a company’s credit worthiness.
5. On the other hand, fake tweets can adversely affect the market. In April 2013, a tweet purportedly coming from the Twitter feed of Associated Press that announced an explosion at the White House, and injuring President Obama sent the market crashing. The New York Stock Exchange and Chicago Mercantile Exchange had a three-minute nosedive, recovering only after it was confirmed that the AP account had been hacked.
In August 2017, President Trump’s tweet putting down Amazon saw the stock price of Jeff Bezos’ company dip by 1.2 percent but regained them on the same day. Trump’s use of Twitter is probably the truest example of social media’s significant influence on the stock market. Toyota, Lockheed Martin, and Boeing also suffered from the president’s tweets. They all rebounded on the same day, a reflection of how traders and the market seriously take presidential tweets.
6. To increase efficiency, automation will become the norm. As social media increases the speed of delivering information and making decisions, commodity companies are pressured to make profits. To meet these demands, efficiency needs to be enhanced by automation. Robots are cheaper, faster, and more accurate in some jobs previously handled by humans. Some processes in the chain may have to be outsourced and systems digitalized.
It is now accepted that social media has agitated the market, with early information driving the prices, including false alarms. Commodity trading companies have adapted to the necessary changes but must still be alert for more technologies that will impact on their line of business.