Transcript News Analytics by

The evolution of Financial News in Trading Strategies
Presented by Andrew Lane,
Managing Director Acuity Trading
1. Why is news so important
2. What is the origin of financial news
3. What is the situation today
4. Where technologies are used today
5. Where will tomorrow lead us
Why is news so important
News is the oil of the financial markets engine,
without it the markets won’t function.
Markets move on either fundamentals or
technicals, and fundamentals are
underpinned by news
News is information, and information
provides for efficiency in price
Truly efficient markets are based on equal
access to information
History of news, the dominance of News Wires
1850 Pidgeon
1851 Reuters is established, publishing global news using carrier pigeons and
telegraph system
Edison ticker 1897-1929
1892 Dow, Jones launches news bulletins hand-delivered throughout the day to
traders at the stock exchange.
1950-1990 DJ Broadtape
1897 The Ticker, the real-time newswire
1923 Reuters develops the use of radio to transmit news internationally
1966 Dow Jones pioneered the use of satellites to transmit newspaper pages
1990 Bloomberg news is launched
2000 Reuters announces major initiatives to exploit the Internet
2006 Reuters and Dow Reuters launches two products that allow its news output to
be “read” by machines for the purposes of automated trading for the first time
2000 internet
The situation today
Today most content can be split into three
News, including flash headlines
Commentary, most content comes under this
commentary
Analysis, including both fundamental and technical
English dominates the trading world, but nearly all
news is translated, and often released in local
languages
Journalists tend to be Euphoric in times of price rise
and predicting disaster in times of price falls
News sources are now Fragmented
Financial News Agencies>
Bloomberg, Reuters and Dow Jones publish 20,000 articles per day
Newspapers>
Have shrunk in numbers, but internet has increased real time element of newspapers
News Agencies>
Move into the financial sphere. Associated Press, Ria Novosti, Agencia EFE, Agence
France Press. All in Multiple languages
Financial Television>
CNBC, Bloomberg, FOX, CNN etc
Press Release wires>
push out millions of announcements every day
Social Media>
…and Finally market moving events appear in Social Media, such as Facebook, Twitter,
Stock Twitts, Linkedin
Buy the Rumour, sell the fact
Today individuals can move markets through social media
Small tiny respected publications have a global audience via the
internet.
All this provides an issue to today’s traders. Too many sources
and too much news
“WSJ- China’s Central Bank To Inject More
Funds Into Chinese Banks — Sources”
“Reuters- Brazil presidential candidate
Campos killed in plane crash”
“Bloomberg -Yellen Message to Europeans
Divided on QE: Do Whatever It Takes”
Financial news providers underpin their brand by being reliable
People speak to major financial publications because of their
wide distribution
When quoting from ‘sources’ top brands require at least 2
independent sources to verify story
How is social media affecting trading decisions
Key Facts:
2013, US Securities and Exchange Commission “Say OK to announce company
statements via Social Media”
In 2013 the Associated Press’ Twitter account tweeted a fake report of an attack
on the White House. The Account was hacked, but it still made markets
crash.
Retail investors now interact with institutional investors and journalists equally
via Social Media
Large communities of investors, learn support and interact via social media- Such
examples are Stock Twitts, Etoro FX trading platform and more
Bloomberg offers a twitter feed of news to its 300,000 users
Bill Gross gets a global audience
Bill Gross QE3 Prediction
Pimco founder Bill Gross
predicted via Twitter in 2011
that the Federal Reserve might
hint at another round of
monetary stimulus at its annual
symposium in Jackson Hole,
Wyo.
"Next Jackson Hole in August
will likely hint at QE3/interest
rate caps," the tweet said.
The reliability of Social Media has been tested more than once
AP Hacked
Stocks briefly nose-dived
Tuesday after a fake tweet on
The Associated Press twitter
feed said President Barack
Obama had been injured in two
explosions at the White House.
It was quickly confirmed to be
fake.
The issues that we face today
Source-The internet has brought a global audience to
thousands of content providers and important individuals
Volume- ‘Infobesity’, millions of financial news items
published everyday
Reliability-Twitter Hacks and rumours still moving markets
This has led traditional news wires to be distillers of truth,
underpinning their trusted brands
But all this information still needs to be acted on instantly
to profit from- Speed
History of Speed
1 day
Rothschilds, by legend, used carrier pigeons to trade on
the outcome of the Battle of Waterloo
For roughly a century leading up to 1970, the state of the
art in financial communication was the telegraphic stock
ticker (for receiving data) and the telephone (for
transmitting orders)
Now it is the high-speed server linked to a financial
exchange by fiber-optic cable as short as physically
possible, because each KM adds about eight microseconds
of latency.
30 seconds
2 seconds
That means trades are now made in microseconds, making
most news strategies based on speed useless to 99.99% of
all traders
30 micro
seconds
Example of Speed today
New York and Chicago, America’s two
great trading centers, are 720 miles
apart as the bird flies — about 3.9
milliseconds at the speed of light. But
variations in transmission technology
or how long the route is can make
millions of dollars’ worth of difference
to high-frequency traders. — Katie M.
Palmer
ORIGINAL CABLE
Technology
Buried fiber-optic cable
Completion
Mid-1980s
Path length
~ 1,000 miles
Round-trip time for data
14.5 milliseconds and up
Approach
Multiple routes followed the
easiest rights-of-way—along
rail lines. But that means timesucking jogs and detours.
SPREAD NETWORKS
Technology
Buried fiber-optic cable
Completion
August 2010
Path length
825 miles
Round-trip time for data
13.1 milliseconds
Approach
Spread bought its own rightsof-way, avoiding a
Philadelphia-ward dip in favor
of a shorter path northwest
through central Pennsylvania.
MCKAY BROTHERS
Technology
Microwave beams through air
Completion
July 4, 2012
Path length
744 miles
Round-trip time for data
9 milliseconds
Approach
Microwaves generally move
faster than photons in optical
fiber, and McKay’s network
uses just 20 towers on a
nearly perfect great circle.
TRADEWORX
Technology
Microwave beams through air
Completion
Winter 2012
Path length
~ 731 miles
Round-trip time for data
8.5 milliseconds (est.)
Approach
Tradeworx is highly secretive,
but the company is open
about the price of a
subscription: $250,000 a
year.
Speed of news
News arbitrage, is the ability to take advantage of new information in the market
faster than others.
News arbitrage was one of the first High Frequency Trading strategies
Trades based on speed are provided through low latency data centres such as
Equinix
It also means brokers and banks need to react to news quicker than ever or
expand their spreads, becoming uncompetitive
Hence the speed of trading is left to a minority of banks and hedge funds
How news is released
Source
Press releases
Technology
News lock ups
Social Media
Journalism
Internet, microwaves, and low latency cables
Destination
Low latency data centres
Robotic news readers
Trading screens
The issue that a news trader faces today
Too much news too many sources
Speed
Multiple languages
How do we use technology to overcome these issues?
Text Analytics
Systematic extraction of data from text for use in
trading & investing En
Entities – Companies, Organisations, People,
Places etc.
Events – Corporate actions & potentially marketmoving events
Relevance – The significance of an entity
(company) within a story or event
Novelty – The stage in the news cycle – breaking
news or follow-up; scoop or not?
Sentiment – Various measures of meaning or
mood
Why is this useful?
We apply the technology to 26 million news and
blogs per day and social media:
We quantify the amount of positive
stories on EUR/USD, day-to-day and watch
how price reacts on a chart
We can predict volatility in the markets by
measuring news volume
Traders can then generate custom
indicators for automated trading models,
or brokers can mix with other data sets to
create custom indicator widgets.
Trading example
Trading example
Trading example
Trading example
Trading example
How predictive sentiment is of the FTSE 100
FTSE 100 in 2013
8
6900
7
6800
6700
6
6600
5
6500
4
6400
3
6300
2
6200
1
6100
0
6000
FTSE Financial Increase Index
Price
20 per. Mov. Avg. (FTSE Financial Increase Index)
51 per. Mov. Avg. (FTSE Financial Increase Index)
20 per. Mov. Avg. (Price)
51 per. Mov. Avg. (Price)
How do we monitor such data
Through simple graphical visualisations
How else can we use news analytics. Case example 1
Reuters: ‘An earthquake with a magnitude of
6.3 has rattled New Zealand's North Island’
Machines can interpret
Traders can automate their systems to:
New Zealand
Sell New Zealand Dollar
Earthquake
Pull trades from market
Ranking of 6.3
Brokers can widen spreads
How else can we use news analytics. Case example 2
Markit EU PMI: ‘Eurozone retail sales fall
at slower rate in October’
Initial response is positive but further
into the press release we read:
“The major concerns remain
Italy and France”
“weak demand driving
disinflationary forces in the
bloc”
Traders can automate their systems to:
Sell Italian and French Bonds
Sell EUR/USD
Sell retail stocks
Using a Relative Strength Indicator and Sentiment (RSI), Case 3
If price RSI is negative (below 30) or positive (above 70) then we need a signal to
confirm whether this will continue
Theory
However if we compare this to sentiment then we get a sense of why the RSI is low.
RSI < 30 + Negative sentiment= Confirmed Short Position
RSI < 30 + Positive sentiment= look for positive breakout in price
Strategy
RSI >70 +Negative Sentiment = look for negative breakout in price
RSI>70 + Positive Sentiment = Confirmed Long position
So where will the future take us in news?
Reputable
brands will act
as filters for
alternative
media
Reuters, Bloomberg,
WSJ and FT
What’s next?
1. Speed using Drones
2. Data, Data, Data…..more Big Data
3. Market Surveillance using News
What’s next?
Satellite
Radio
Drones
In the future drones will transmit
information via microwaves
across the Atlantic and pacific
More Big Data, an example of using Google trend data….
Google trend data….
Amazon Share price in red led by Amazon search volume in yellow
Search volume of currency pairs on Google
The Popularity of Trading Currencies on Google by Region as a
ratio of search results
Market Surveillance
In the future regulators will use news for market surveillance
1.
2.
3.
4.
An example could be insider trading
Short position built up in market over two month period
However this does not correspond to sentiment in market
Regulator investigates red flag the event
Summary
Volume of news is increasing exponentially
Distribution of news has fragmented, especially through social
media
More data being created every day, including news, the ability to
understand large data volumes will be the future of trading
All this means technology is crucial in using news as part of a
trading strategy today