FORTUNE — Bloomberg LP has long prided itself on being the premier provider of financial data, news, and analytics, but can it deliver news faster than social media?
Millions of dollars can change hands through the rapid decisions investors make based on industry news. It’s why they’re willing to pay an average of $20,000 a year to use a Bloomberg terminal. The service, which makes up Bloomberg’s core business, aggregates information from more than 1,000 news organizations and 90,000 websites, vital to clients looking for any kind of advantage for their investment strategies. Companies like New York-based startup Dataminr claim they can deliver market-moving information faster than the newswires by accessing and analyzing information available on social media.
Yesterday the Dow Jones Industrial Average dropped 146 points within seconds after a hacked AP account falsely claimed the White House was under attack. While the market recovered quickly after the hoax was exposed, it showed just how many Wall Street traders were now relying on Twitter for trading information.
Dataminr says it was able to alert its clients to the hoax a full two minutes ahead of major news. The startup has partnered with Twitter to access the entire “firehose” of nearly 400 million daily tweets on the platform. It implements event detection software that trawls the Twittersphere to identify hotspots of activity or emerging trends that match its client’s watchlist of topics, industries or companies. In this way, it says it can provide useful information to governments or finance firms.
The company was one of the first entities to report the news of Osama Bin Laden’s death after spotting a tweet by a former Defense Department official. It only took 19 more tweets about the subject before the company sent an alert out to its clients, who received the news 20 minutes before it broke on traditional news sites. (Dataminr representatives did not respond to request for comment.)
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Access to real-time news and data from a massive network with few geographic restrictions is crucial in a practice where an edge is gained by nanoseconds. For example, a fire at an oil refinery could briefly spike the price of gasoline. While it could take newswires several minutes to report the story, tweets from the actual incident could alert investors in real time and allow them to make a profitable trade.
In addition to speed, Twitter analytics promise to provide companies with so-called sentiment analysis — a measure of how people feel. This can be done in real time, gauging not just the broad market “mood” of consumers, but also people’s reactions to marketing campaigns, product introductions, and personal endorsements. In 2010, Indiana University informatics professor Johan Bollen published a study that found social sentiment on Twitter could predict swings in the Dow Jones Industrial Average with a startling 87% accuracy. “It’s definitely a very powerful environment, you have people acting as human sensors,” says Bollen. “There is such a thing as the wisdom of the crowd.”
The developments haven’t gone unnoticed by Bloomberg, which announced the addition of its own Twitter service for Bloomberg terminals earlier this month. The service will provide clients a curated live feed from the Twitter accounts of corporations, executives, government officials, economists, commentators, media outlets, and other influential sources of news chosen by the Bloomberg staff. Users can set alerts and filters for the companies they want to follow. In addition, a section called “Bloomberg Social Velocity” tracks abnormal spikes in chatter about specific companies.
“Twitter is just another channel our clients can use along with all the other services we provide,” says Brian Rooney, core-products manager for news at Bloomberg. “It’s a natural extension of what we have been providing in the past.”
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Most Wall Street banks don’t allow the use of social media at work, citing security and communication concerns, so employees will finally get a glimpse of the Twitter conversation through the terminals. However, it’s not without limitations. For one, the Twitter feed is presented on Bloomberg’s own terminal interface which can be clunky compared to the native Twitter layout. There is also not a lot offered in terms of in-depth analysis, and although the list is growing, it’s still filled only with sources chosen by Bloomberg, limiting the voices that can be heard.
“The client doesn’t want the full Twitter hose,” says Rooney. “What they’re looking for are tweets that matter and exposure to the broad conversation.” Rooney also says Twitter is only one component of the data and Bloomberg has plenty of resources and experience for spotting news without the use of social media.
To get access to the full Twitter “firehose,” companies would have to use a social media API provider like Gnip. In fact, many hedge funds are foregoing using an analytics platform like Dataminr and simply using Gnip to directly access and filter the Twitter feed and perform the analysis themselves.
However, Gnip’s director of assets and financial technology, Seth McGuire believes that while social media analysis is an increasingly integral tool for professional investors, it isn’t the complete picture. “The guys on the Street will never rely on only one source of data, says McGuire. “Analytics makes social media interesting, but it’s not a replacement of other sources.”
This story has been updated to include more information on Tuesday’s flash crash.
