Alternative data is the new normal for financial markets
Financial markets move fast. Speed and accuracy have always been essential skills for financial professionals and it is those who act quickest, with the best insight, that have competitive advantage. Real-time, differentiated and reliable information is key to staying ahead, and in today’s ultra-competitive trading environment, knowing first is more important than ever.
The image of traders poring over ticker tapes or the stock pages of the morning paper to find that all important piece of information to put them ahead of the game are bygone. Breaking news can impact even the most impressive trading strategy, and social media has forever changed the way and speed in which news breaks.
The pulse of the planet
Leveraging alternative data, including that found on social media, is now a necessary skill for financial professionals. Real-time data like Tweets and social posts can help investors and traders get the right insight, instantly. This extra layer of insight is like gold dust for investors.
According to research from EY, over three quarters (78%) of hedge funds currently or expect to use non-traditional data to support investments. Research from Greenwich Associates has shown that alternative data spending is expected to increase in 2018 for both hedge funds and asset managers, with 74% of hedge funds planning to boost their alternative data spending in 2018.
Additionally, those asset managers and hedge funds employing alternative data sets as part of their strategies, report that it’s paying off by delivering returns. In this way, accessing and understanding alternative data is now increasingly seen as the ‘new normal’ for investors, and those who fail to capitalise on it will be left by the wayside.
Adding structure to the unstructured
Social media is becoming increasingly respected by finance professionals as a reliable and respected alternative data set, providing a full, global picture, in real-time. But with the sheer volume of social data, covering a wider breadth of topics and sources, the real skill comes in finding the relevant signals in amongst all the noise.
Having access to the right tools and platforms can help traders filter through the myriad of sources, providing a single, structured view on everything and anything that might be relevant to them, in the moment.
For investors, context is king
Traders need a full 360 view. Although they may be trading specific commodities, it’s essential they have insight into all geopolitical events, exchange announcements and other breaking news that may have a direct impact on their trades.
For example, news of a gas explosion in Baumgarten, Austria, last December sent gas futures soaring with Brent Crude rising above $65 a barrel for the first time since 2015. But the story broke through local eyewitnesses who Tweeted about the explosion before it made media headlines, giving those who saw the original posts the first mover advantage.
You never know how, when, and where news is going to break but context remains key. For example, Twitter is made up of 330 million different sources – from official handles to market commentators and eye witnesses – enabling real intelligence traders to track an event, as it happens, and make the smartest investment decisions, quicker. Additionally, leveraging the publically available data on Twitter gives financial professionals the ability to see all perspectives on the same event and an early window into the full commentary of what’s happening to ensure they have all bases covered.
The world is full of noise, but adding structure to unstructured alternative data sets is helping to bring a world of information into sharp focus for traders and investors – giving them the earliest indication of breaking news, real-world events and emerging trends as they happen, and not after the fact.
Edward Oliver is vice president, finance sales at Dataminr.