Experienced traders recognize the results 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 an often more predictable and effective trading method that will increase profitability while reducing risk.
The faster a trader can receive economic news, analyze the info, make decisions, apply risk management models and execute trades, the more profitable they could become. Automated traders are usually more successful than manual traders since the automation will work with 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 a human without emotion. To be able to take advantage of the reduced latency news feeds it is essential to truly have the right low latency news feed provider, have an effective trading strategy and the correct network infrastructure to guarantee the fastest possible latency to the headlines source to be able to beat the 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 premier priority. Whilst the remaining portion of the 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 rely 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 is definitely an embargo. Following the embargo is lifted for news event, reporters enter the release data into electronic format which is immediately distributed in a proprietary binary format. The data is sent over private networks to several distribution points near various large cities around the world. To be able to receive the headlines data as quickly as you can, it is essential that the trader work with a valid low latency news provider that’s invested heavily in technology infrastructure. Embargoed data is requested by a source to not be published before a particular date and time or unless certain conditions have been met. The media is given advanced notice to be able to prepare for the release.
News agencies likewise have reporters in sealed Government press rooms during a definite lock-up period. Lock-up data periods simply regulate the release of all news data so that each news outlet releases it simultaneously. This can be carried out in two ways: “Finger push” and “Switch Release” are used to regulate the release.
News feeds feature economic and corporate news that influence trading activity worldwide. Economic indicators are used to facilitate trading decisions. The headlines is fed into an algorithm that parses, consolidates, analyzes and makes trading recommendations based upon the news. The algorithms can filter the headlines, 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 equal a significant edge in the market.
News is a good indicator of the volatility of a market and in the event that you trade the headlines, opportunities will present themselves. Traders have a tendency to overreact whenever a news report is released, and under-react if you have hardly any 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 once the announcement is made. Instantaneous analysis is made possible through automated trading with low latency news feed. Automated trading can play part of a trader’s risk management and loss avoidance strategy. With automated trading, historical back tests and algorithms are utilized to select optimal entry and exit points.
Traders have to know once the data will undoubtedly be released to understand when to monitor the market. Johanna Leia 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 planet, 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
Many investors that trade the headlines seek to have their algorithmic trading platforms hosted as close as you can 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 perfect locations to position your servers have been in well-connected datacenters that enable 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 have to be close enough to the headlines to be able to act upon the releases however, close enough to the broker or exchange to really get your order in prior to the masses looking for the best fill.
Low Latency News Feed Providers
Thomson Reuters uses proprietary, state of the art technology to make a low latency news feed. The headlines feed was created designed for applications and is machine readable. Streaming XML broadcast can be used to create full text and metadata to ensure 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 headlines is released. Once the category reaches a threshold, the investor’s trading and risk management system is notified to trigger an access or exit point from the market. Thomson Reuters features a unique edge on global news compared to other providers being one of the most respected business news agencies on earth or even the absolute most respected outside of the United States. They have the benefit of including global Reuters News for their feed along with third-party newswires and Economic data for both United States and Europe. The University of Michigan Survey of Consumers report is also 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 certainly to Know News, Dow Jones News and Rapidata which we shall discuss further when they make information regarding their services more available.
Samples of News Affecting the Markets
A news feed may indicate a change in the unemployment rate. For the sake of the scenario, unemployment rates will show a confident change. Historical analysis may show that the change is not due to seasonal effects. News feeds show that buyer confidence is increasing due the decline in unemployment rates. Reports provide a powerful 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 absolute most profits. An automatic trade could be executed once 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 headlines 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 a dollar may continue to fall.
The big players will typically make their decisions ahead of the majority of the retail or smaller traders. Big player decisions may affect the market in surprise way. If your choice 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 can create a trading opportunity. Directional-bias trading accounts for many 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 headlines, you are able to capitalize. You can find hardly any folks that will argue against that fact. There’s without doubt that the trader receiving news data prior to the curve gets the edge on getting a solid short-term trade on momentum trade in several markets whether FX, Equities or Futures. The cost of low latency infrastructure has dropped within the last couple of years which makes it possible to donate to a low latency news feed and receive the info from the source giving a significant 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