Trade News the Second It Comes Out
05/15/2012 1:00 pm EST
Automated trading systems now have the power to trade news and economic reports, explains Jitesh Thakkar, and retail traders can capitalize using off-the-shelf trading software.
We’re talking about machine-readable news, what it is and how it works, with Jitesh Thakkar.
There are two components to machine-readable news: Economic data numbers that come out of the government lockup rooms and other sources. Those numbers are released to news agencies that are in those lockup rooms.
They are disseminated through proprietary servers, which have low-latency lines to exchanges, and top-tier hedge funds and banks have sophisticated algorithms and servers that are pre-programmed to take advantage of economic numbers that come out, such as a non-farm payrolls or a GDP number.
These numbers do move the markets quite a bit, so when these numbers come out, sophisticated traders have taken advantage of latencies and algorithms to trade off these numbers.
But I see these numbers being used more by the retail traders. There are several platforms being developed today which will be able to use this technology for the retail trader.
So give me an example in the real world how this would work for the retail investor?
Let’s say the unemployment number was expected to be 8.5, but it comes in as 8.2, which is lower than expected. That is going to move the market on the positive side.
So sophisticated traders pre-program their algorithms to buy the S&P E-mini or whatever the indexes are of the equivalent stocks. Based on how good the number comes out, that will dictate how many shares or how many futures contracts the algorithm will buy.
So this is all pre-programmed and as soon as the number comes out, the algorithm makes the decisions and the trades are executed in microseconds—less than a millisecond.