Before I start, I am obliged to remind our viewers that this is not advice only general commentary from my extensive research in this area.
There is no doubt Trump has made a name for himself as the 45th President of the United States. Only 3 of these Presidents have been impeached in the history of the United States and of these three, only one has been able to move the market so significantly with a Twitter account. It is quite remarkable to see social media making a significant impact on the Global markets with more and more people around the globe becoming immediately connected with one another.
As we progress into this technological era of social media, one must note that the market will continue to become more volatile. Becoming an investor now only requires a phone and some funds, therefore allowing the “everyday” investor to enter the market. Alongside this, the increased use of AI and programmed systems has created a market that reacts to news both fast and dramatically.
Trump’s tweets alone have the ability to shift the market a certain way, to the point where a recent study posted by CNBC said “On days when President Trump tweets a lot, the stock market falls”. The market acts this way to pure speculation alongside AI that uses frequency and key phrases in his sentences to either buy,sell, short or long ect. Trump’s activity on Twitter has since been coined by JP Morgan as the Volfefe Index. This index examination found that the key phrases used in Trump’s tweets such as “billion”, “great” and “China” were the strongest market movers especially affecting the price on 2-5 year Treasury Bonds. If you don’t know the importance of bonds and how they are priced there is more information here. These bonds will either increase or decrease price due to volatility or speculation on the country that is issuing this debt.
Now being realistic, a good investor such as Warren Buffet would not react to speculative news or in that matter even care. A long term investor will make calculated risk based on a set formula whether that consistency in financials or it’s internal performance. Some investors however trade within the day to make a small return, this is a risky game. Only experienced and highly skilled investors will make money trading on a daily basis due to pure speculation and the high levels of risk involved. So could you actually make money off Trump’s tweets?
Unless you could buy/sell within 2-3 seconds of Trump tweeting you would miss the gap. 2-3 seconds is generally the time it takes for an algorithm to buy/sell a financial instrument, therefore without an algorithm it would be too risky and physically impossible to set up a trade that quick. If however, you could build an algorithm effectively, who’s not to say you could have been already filthy rich! I highly recommend checking out the Volfefe Index by JP Morgan as it has some very fascinating data on the behaviour of these algorithms.
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The information above should not be taken as financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.
Written by Tyger Fitzpatrick, founder of YIG.