A big retail broker is now using Twitter to help traders beat the market

When a breaking news event occurs, the traders who hear it first often come out on top.

And now that social media platforms like Twitter are coming to rival traditional news outlets in disseminating breaking news, that means traders are having to adapt.

Now, an online brokerage is trying to capitalize on this trend by offering real-time, social media news alerts to its clients.

Financial services firm Scottrade has partnered with social media intelligence platform Contix to service its trading clients, the companies said Tuesday August 2.

Contix analyzes over half a billion social and traditional media posts per day and sends actionable news alerts containing the very earliest mentions of breaking, market-moving news to allow traders to make more timely and informed trading decisions.

"Twitter and social media emerged as a new data set many years ago," Ryan Bailey, CEO of Contix, told Business Insider. "People would see breaking news events on smart phones and take a video or report on it. It's a new and valuable data set for the financial services sector to use."

Scottrade provides the alerts through its ScottradeELITE platform. Traders can create custom alerts based on their own trading criteria, choosing either specific company names, sectors, or asset classes.

The alerts flow through in real time and link to a tool called Viewpoints that offers more in-depth analysis. The Viewpoints dashboard has graphs, recent news alerts, sentiments, stock price, trading volumes, and contextual information that can create a more complete picture of the alert.

Bailey said that Contix sent out nearly 2000 alerts per day across all assets during earnings season, but typically, an individual custom list of 50 names will get 10 to 15 alerts per day.

The tool is offered free of charge for 2 weeks for elite Scottrade clients, and those who end up subscribing receive a discounted rate from Contix and 20 free trades from Scottrade. Contix charges a flat fee of $60 per month for use of its service.

While social media can often provide information faster than traditional news outlets, the medium is also vulnerable to rumors, hoaxes and frauds aimed at manipulating stock prices.

Contix however, is well versed in how to spot a hoax.

When someone created a fake Bloomberg news story that Twitter itself was fielding takeover bids, Contix immediately spotted a few clues that it was fraud, according to Bailey.

"At the core of our systems is a credibility analysis algorithm," he said.

The company filters out the noise and volume of social media by rating the source of the news. Sources are ranked according to credibility levels, and if news comes from a lower credibility source, the system waits for corroboration from independent sources before an alert is released.

The algorithm also analyzes different meta data related to the social media users, including previous posts, frequency of posts, connections, quality of connections, and how long the account has existed.

"At the core of system," said Bailey, "are tools to prevent bad actors."

The company launched in 2012 and started off by selling services to institutions, including hedge funds, investment banks, propietary trading shops, and research firms.

"We built a product from the ground up to meet their needs," Bailey said.

They are now expanding their platform to retail investors and individual traders.