Experienced traders recognize the consequences of global changes on Foreign Exchange (Forex/FX) markets, stock markets and futures markets. Factors such as interest rate decisions, inflation, retail sales, unemployment, industrial productions, consumer confidence surveys, business sentiment surveys, trade balance and manufacturing surveys affect currency movement. While traders could monitor these details manually using traditional news sources, profiting from automated or algorithmic trading utilizing low latency news feeds is a generally more predictable and effective trading method that can increase profitability while reducing risk.
The faster a trader can receive economic news, analyze the information, make decisions, apply risk management models and execute trades, the more profitable they are able to become. Automated traders are generally more successful than manual traders because the automation will use a tested rules-based trading strategy that employs money management and risk management techniques. The strategy will process trends, analyze data and execute trades faster than the usual human without emotion. In order to take advantage of the low latency news feeds it is important to have the right low latency news feed provider, have an effective trading strategy and the correct network infrastructure to ensure the fastest possible latency to the news source in order to beat your competition on order entries and fills or execution.
How Do Low Latency News Feeds Work?
Low latency news feeds provide key economic data to sophisticated market participants for whom speed is a top priority. As the remaining world receives economic news through aggregated news feeds, bureau services or mass media such as news web sites, radio or television low latency news traders count on lightning fast delivery of key economic releases. These include jobs figures, inflation data, and manufacturing indexes, directly from the Bureau of Labor Statistics, Commerce Department, and the Treasury Press Room in a machine-readable feed that is optimized for algorithmic traders.
One method of controlling the release of news can be an embargo. Following the embargo is lifted for news event, reporters enter the release data into electronic format which will be immediately distributed in an amazing binary format. The info is sent over private networks to many distribution points near various large cities across the world. In order to receive the news data as quickly as possible, it is important that the trader use a valid low latency news provider that’s invested heavily in technology infrastructure. Embargoed data is requested with a source not to be published before a certain date and time or unless certain conditions have now been met. The media is given advanced notice in order to prepare for the release.
News agencies also provide reporters in sealed Government press rooms during a defined lock-up period. Lock-up data periods simply regulate the release of news data so that each news outlet releases it simultaneously. This can be carried out in two ways: “Finger push” and “Switch Release” are accustomed to regulate the release.
News feeds feature economic and corporate news that influence trading activity worldwide. Economic indicators are accustomed to facilitate trading decisions. The headlines is fed into an algorithm that parses, consolidates, analyzes and makes trading recommendations based on the news. The algorithms can filter the news, produce indicators and help traders make split-second decisions in order to avoid substantial losses.
Automated software trading programs enable faster trading decisions. Decisions produced in microseconds may mean an important edge in the market.
News is an excellent indicator of the volatility of a market and in the event that you trade the news, opportunities will present themselves. Traders often overreact each time a news report is released, and under-react when there is almost no news. Machine readable news provides historical data through archives that enable traders to back test price movements against specific economic indicators.
Each country releases important economic news during certain times of the day. Advanced traders analyze and execute trades almost instantaneously when the announcement is made. Instantaneous analysis is made possible through automated trading with low latency news feed. Automated trading can play an integral part of a trader’s risk management and loss avoidance strategy. With automated trading, historical back tests and algorithms are utilized to choose optimal entry and exit points.
Traders have to know when the data will undoubtedly be released to understand when to monitor the market. As an example, important economic data in the United States is released between 8:30 AM and 10:00 AM EST. Canada releases information between 7:00 AM and 8:30 AM. Since currencies span the world, traders may always locate a market that is open and ready for trading.
Where Do You Put Your Servers? Important Geographic Locations for algorithmic trading Strategies
Nearly all investors that trade the news seek to own their algorithmic trading platforms hosted as close as possible to news source and the execution venue as possible. General distribution locations for low latency news feed providers include globally: New York, Washington DC, Chicago and London.
The ideal locations to put your servers are in well-connected datacenters that allow you to directly connect your network or servers to the actually news feed source and execution venue. There should be a balance of distance and latency between both. You need to be close enough to the news in order to act upon the releases however, close enough to the broker or exchange to really get your order in in front of the masses looking to find the best fill.
Low Latency News Feed Providers
Thomson Reuters uses proprietary, state of the art technology to generate a low latency news feed. The headlines feed is made specifically for applications and is machine readable. Streaming XML broadcast is employed to make full text and metadata to make sure that investors never miss an event.
Another Thomson Reuters news feed features macro-economic events, natural disasters and violence in the country. An analysis of the news is released. Once the category reaches a threshold, the investor’s trading and risk management system is notified to trigger an entry or exit point from the market. Thomson Reuters has a unique edge on global news compared to other providers being one of the very respected business news agencies on earth if not the most respected outside of the United States. Katianna Stoermer Coleman They have the advantage of including global Reuters News to their feed as well as third-party newswires and Economic data for both the United States and Europe. The University of Michigan Survey of Consumers report can also be another major news event and releases data twice monthly. Thomson Reuters has exclusive media rights to The University of Michigan data.
Other low latency news providers include: Need to Know News, Dow Jones News and Rapidata which we will discuss further if they make information regarding their services more available.
Examples of News Affecting the Markets
A news feed may indicate a big change in the unemployment rate. For the sake of the scenario, unemployment rates will show a confident change. Historical analysis may reveal that the change is not because of seasonal effects. News feeds reveal that buyer confidence is increasing due the decrease in unemployment rates. Reports provide a solid indication that the unemployment rate will remain low.
With this information, analysis may indicate that traders should short the USD. The algorithm may determine that the USD/JPY pair would yield the most profits. An automatic trade would be executed when the target is reached, and the trade will undoubtedly be on auto-pilot until completion.
The dollar could continue to fall despite reports of unemployment improvement provided from the news feed. Investors must remember that multiple factors affect the movement of the United States Dollar. The unemployment rate may drop, but the overall economy may not improve. If larger investors do not change their perception of the dollar, then your dollar may continue to fall.
The big players will typically make their decisions prior to most of the retail or smaller traders. Big player decisions may affect the marketplace in surprise way. If your decision is made on only information from the unemployment, the assumption will undoubtedly be incorrect. Non-directional bias assumes that any major news about a country will generate a trading opportunity. Directional-bias trading accounts for several possible economic indicators including responses from major market players.
Trading The News – The Bottom Line
News moves the markets and in the event that you trade the news, you are able to capitalize. You will find very few people that can argue against that fact. There’s no doubt that the trader receiving news data in front of the curve has got the edge on finding a solid short-term trade on momentum trade in various markets whether FX, Equities or Futures. The price of low latency infrastructure has dropped in the last several years which makes it possible to contribute to a low latency news feed and receive the information from the foundation giving a huge edge over traders watching television, the Internet, radio or standard news feeds. In a market driven by large banks and hedge funds, low latency news feeds certainly supply the big company edge to even individual traders