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Great Data – The Antidote to Speed and Volatility Stress
Traders Magazine Online News, May 2, 2017
Automated traders are in an elite club. Every day, they walk a high-stakes tightrope between the potential for big gains and big losses. Whether you’re a market maker, volatility trader, or systematic trader, every day is like a poker tournament held at microsecond speeds.
That’s why speed commands so much attention in the machine trading world. Speed is sexy, speed sizzles. In shops that have more of it, their machine-driven trading can move them into or out of positions faster than their competitors. That helps win more often than not, and equally important, helps them avoid getting picked off.
Barry Star
There’s no question about it. Speed is exhilarating. But it’s also stressful.
When you’re moving at microsecond speeds, very good and very bad things can happen in a flash. Therein lies the stress. You and your machines need to be always consuming data, sifting it for opportunities, and moving on them fast – and your moves need to be right most of the time.
It’s that last part that can often get tricky. With machine traders focusing so much on speed, they seem less focused on the quality of the data they’re feeding into their models – the ones and zeroes that ultimately drive trading decisions. That’s dangerous because bad data received at the speed of light is still bad data.
Take event-driven opportunities, for example. Lots of different types of events can create volatility and intraday trading opportunities. For most of them, getting the information quickly and understanding its significance faster than others is how traders gain an edge – so it’s all about speed. That goes for macroeconomic events, like change in the U.S.’s natural gas supplies, and unanticipated events, like news of a major airline CEO defending his company after a passenger is randomly chosen to be removed involuntarily.
But with planned or largely predictable events, the quality and accuracy of that data is even more important than how fast a trader gets it.
Many U.S. publicly traded companies announce their earnings dates in advance by publishing this information via press release or other means. Investors and vendors alike scour the content to get accurate information on the upcoming earnings release. Yet, with access to multiple press release services and a dizzying number of traditional and new venues (i.e. social media) to announce the upcoming date, there are many options for each company and a lot of bases to cover for investors/vendors. Without a thorough investigation of the company-issued data, some assume they can just use last year’s date plus one day. That’s not good enough and not at all good for a risk or trading strategy.
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