Although trading volumes continue to shrink − from 2.6 billion shares traded in 2008 to around 1.4 billion shares traded in 2013 − the one thing that has grown besides fines at JPMorgan Chase is the sheer volume of data that bombards traders each day. Big Data may have started out as a marketing buzzword among the tech set a few years ago, but it is a reality for every trader and broker on Wall Street and beyond.
This year, Traders profiled several firms that rely on Big Data to score their next big trade. While Bloomberg terminals and data feeds from Thomson Reuters arent going away soon, Big Data traders like Flyberry Capital of Cambridge, Mass., scour the Internet for information on earthquakes, weather patterns and forecasts as well as traditional news feeds found online.
We believe all of the price movement is subject to information shocks. Basically, when you see that theres an event coming, thats when you see a huge price movement, said Michael Chang, a Massachusetts Institute of Technology grad who started Flyberry Capital with other MIT alums for their growing hedge fund. The question is: How can we identify those things? We try to use some novel information to inform us and make the right decision.
Flyberry Capital caught the eye of the people behind BattleFin, the so-called Hunger Games of quantitative hedge funds. Each quarter, dozens of established and newbie hedge funds enter to compete for the prize of startup funds. The only requirement is a plan and vision that utilizes Big Data.
Were looking for disciplined, repeatable, differentiated strategies, said Tim Harrington, a hedge fund manager and one of the men in charge of the BattleFin tournaments. We want someone who is looking at the world in a different way. We stay away from guys who rely on sellside research or technical analysis. Were looking for the strategies that leverage data streams, and managers who can mine large amounts of data and make sense of it. We pay particular attention to strategies that use weather, Twitter feeds and other data sources that have not been picked over and over-analyzed.
Citing hedge fund giants Two Sigma and Renaissance, BattleFin believes that the future of hedge fund investment strategies centers on Big Data and the managers who are willing to look for data beyond their Bloomberg terminals and Thomson Reuters feeds.
And Big Data is having an impact on trading floors in another way: Its shrinking them. With the focus on automated trading, algorithms and aisles of high-speed computers crunching data, the once bustling trading floor is getting a lot quieter. UBSs zeppelin-hangar-size trading floor in Stamford, Conn., now houses human resources and IT support staffers instead of being jam-packed with shouting traders, according to The Wall Street Journal.
But Big Data has not replaced human being entirely. According to legendary NYSE floor trader Kenny Polcari, traders and brokers are needed to spot glitches and make quick decisions that often elude the machines. Pointing to the flash crash in 2010 when NYSE floor traders helped keep the damage under control, Polcari doesnt mince words: “When the [expletive] hits the fan, people will still want to talk to people.”
