Experienced traders recognize the results of global changes on Foreign Exchange (Forex/FX) markets, stock markets and futures markets. Factors such as for instance 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 could 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 are able to become. Automated traders are usually more successful than manual traders as 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 a human with no emotion. In order to make the most of the reduced latency news feeds it is vital to truly have the right low latency news feed provider, have a proper trading strategy and the right network infrastructure to ensure the fastest possible latency to the news source to be able 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. While the remaining world receives economic news through aggregated news feeds, bureau services or mass media such as for instance news those sites, radio or television low latency news traders depend 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’s optimized for algorithmic traders.
One approach to controlling the release of news is an embargo. After the embargo is lifted for news event, reporters enter the release data into electronic format that will be immediately distributed in an amazing binary format. The information is sent over private networks to several distribution points near various large cities around the world. In order to receive the news data as quickly that you can, it is vital a trader use a valid low latency news provider that’s invested heavily in technology infrastructure. Embargoed data is requested with a source never to be published before a certain 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 also provide reporters in sealed Government press rooms during a defined lock-up period. Lock-up data periods simply regulate the release of all news data so that every news outlet releases it simultaneously. This can be achieved 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 to avoid substantial losses.
Automated software trading programs enable faster trading decisions. Decisions made 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 news, opportunities will present themselves. Traders tend 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 created 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 must know once the data is likely to be released to know when to monitor the market. For 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 find a market that’s open and ready for trading.
Where Do You Put Your Servers? Important Geographic Locations for algorithmic trading Strategies
The majority of investors that trade the news seek to own their algorithmic trading platforms hosted as close that 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 come in well-connected datacenters that permit you to directly connect your network or servers to the actually news feed source and execution venue. There has to be a balance of distance and latency between both. You must be close enough to the news to be able to act upon the releases however, close enough to the broker or exchange to truly get your order in prior to the masses looking to find 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 specifically for applications and is machine readable. Streaming XML broadcast can be used to make 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 news is released. When 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. Johanna Leia Thomson Reuters features a unique edge on global news compared to other providers being one of the very most respected business news agencies on the planet if not the most respected outside the United States. They have the main advantage of including global Reuters News for their feed in addition to 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 will discuss further if they make information regarding their services more available.
Types of News Affecting the Markets
A news feed may indicate an alteration in the unemployment rate. For the sake of the scenario, unemployment rates will show a positive change. Historical analysis may reveal that the change is not because of seasonal effects. News feeds reveal that buyer confidence is increasing due the decline in unemployment rates. Reports provide a strong 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. A computerized trade could be executed once the target is reached, and the trade is likely to be on auto-pilot until completion.
The dollar could continue steadily to fall despite reports of unemployment improvement provided from the news feed. Investors must bear in mind 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 steadily to fall.
The big players will typically make their decisions just before all the retail or smaller traders. Big player decisions may affect the marketplace in an urgent way. If the decision is created on only information from the unemployment, the assumption is likely to be incorrect. Non-directional bias assumes that any major news about a country can provide a trading opportunity. Directional-bias trading accounts for all 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 can capitalize. There are not many folks that could argue against that fact. There’s no doubt that the trader receiving news data prior to the curve has the edge on getting a solid short-term trade on momentum trade in various markets whether FX, Equities or Futures. The cost of low latency infrastructure has dropped over the past several years making it possible to sign up to a low latency news feed and receive the info from the source 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 provide the big company edge to even individual traders