Although the ability to analyze news events in real time has been promoted as the next step in the evolution of automated trading, panelists at Wall Street & Technology’s recent Accelerating Wall Street conference are doubtful the capability can provide an edge.
“Two years ago, only 2 percent of the market was testing trading strategies with real-time news,” said Adam Honore, research director at analyst firm Aite Group, during the panel session, “Using High-Performance Databases & CEP in an Automated Trading Strategy.” “Today, two-thirds of the market is at least testing real-time news. The problem, however, is real-time news is not very reliable.”
Panelists Robert Almgren, cofounder of Quantitative Brokers, an agency-only brokerage that provides best execution algorithms and transactional cost measurement for fixed income markets, also said he hasn’t seen much value in analyzing news in an automated strategy. “I have always been a pessimist about news, and I would rather use a quantitative method, such as looking at historical data or economic indicators,” he revealed.
“The problem with news,” Almgren continued, “is humans don’t even know how to interpret it. So how could a computer?” For example, he noted, how do you know the news story is accurate, or if you are really the first person to see it?
Andrew Haines, chief information officer, at GAIN Capital Group, also has been hesitant to deploy the real-time news analysis capability in a trading strategy. “It’s hard to come up with a defensible trading strategy based on unstructured news,” he told attendees.
In addition, Haines said, he also decided not to try to analyze Twitter messages for trade ideas. “Streambase, our CEP [complex event processing] provider, has the ability to analyze Twitter, but we are not using it,” he commented. GAIN Capital, however, is looking at real-time news and Twitter for enhancing risk management, he added, but nothing currently is deployed.
Instead of using CEP to analyze news, Haines noted, GAIN Capital is using the technology on its foreign exchange ECN. “We selected our vendor CEP tool last year,” he reported. “With a vendor-provided tool, we can focus on business functionality rather than building the technology. We have bolted the CEP tool onto our ECN with great success.”
But even without adding real-time news or Twitter messages to an automated trading strategy, all of the panelists agreed that managing the sheer volume of traditional data is a challenge. “The data volumes are so huge,” said Quantitative Brokers’ Almgren. “And if you want to go back and add historical data to a calculation, the problem with processing and analyzing all of the data is tremendous.”
Greg MacSweeney is editorial director of InformationWeek Financial Services, whose brands include Wall Street & Technology, Bank Systems & Technology, Advanced Trading, and Insurance & Technology. View Full Bio