The race is on for hedge funds to better understand how social media is moving markets or risk the same fate as the short-sellers who were clobbered by the rally in GameStop shares.
One way to get ahead of these trends is to more closely track subreddits such as /WallStreetBets, which sparked off the recent buying frenzy and is keeping it rolling with a steady stream of messages telling members to "hold the line" on their investment.
But reading every Reddit post is a tough sell for a hedge fund or institutional investor engaged in high-speed, high-volume trading. That's why brothers Christopher and James Kardatzke, founders of Quiver Quantitative, are suddenly getting a lot of interest from Wall Street.
Over the past few days, the Wisconsin-based startup has gotten a steady stream of inquiries from hedge funds asking about how their technology can help them track social media.
"We've been getting a lot of emails from different hedge funds interested in using our data API to basically get data from /WallStreetBets," Christopher Kardatzke, the chief technology officer for Quiver Quantitative, told cheddar. "They want to make sure there isn't this retail investor interest in what they're taking short positions in."
The company, which provides both free and custom application programming interfaces (API), tracks or "scrapes" alternative data sources such as subreddits, Twitter, and Facebook channels — basically any non-financial source that could be relevant to markets.
Fortunately for the startup, it had been scraping the popular subreddit since early 2020.
Technically, that means it was tracking the number of times certain stocks or ticker symbols were mentioned and whether there was a positive or negative sentiment around those stocks.
Looking at the whole year, Quiver found that the "WallStreetBets Portfolio," a breakdown of the top stocks mentioned positively on the subreddit, was up more than 61 percent, was more volatile than the S&P 500, but outperformed it even through the downturn at the start of the year.
Right now, this data is aggregated on a daily basis, but the startup is working on rolling out a real-time feed within the next few weeks.
"It's pretty basic stuff, but we're in the process right now of expanding that into a live feed to get the most recent comments within seconds," the CTO said.
Kardatzke noted that this will be particularly useful to hedge funds, and will fit well with /WallStreetBets, which features daily posts outlining where members plan to invest the following day.
Soon, he added, Quiver will start looking at language more specific to the subreddit, including option trading terms such as puts and calls.
And while Quiver will likely develop some of these inquiries from hedge funds into client relationships, the company plans to maintain its free platform, which Kardatzke said was originally built to help retail rather than institutional investors.
"It's so relevant to retail investors," he said. "It's data you see in your everyday life. You don't need a finance degree to be able to analyze it or get insights from it."
Kardatzke said that he's conscious that the company could soon be straddling both sides of what appears to be a growing rift in the financial world. The way to remedy that is by making sure both sides are catered to. Retail investors, for instance, want more visualizations and analysis, while institutions want APIs to use for their own analysis, he said.
He said that typically data providers only offer the latter, "but we’d like to do everything we can to make insights from our data available to the public, while keeping afloat."