Experienced traders recognize the effects 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 records 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 could increase profitability while reducing risk.
The faster a trader can receive economic news, analyze the data, make decisions, apply risk management models and execute trades, the more profitable they are able to become. Automated traders are often more successful than manual traders since the automation will make use of 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 with no emotion. In order to make the most of the reduced latency news feeds it is vital to have the right low latency news feed provider, have an effective trading strategy and the proper network infrastructure to guarantee the fastest possible latency to the news headlines 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 high priority. As the rest of the world receives economic news through aggregated news feeds, bureau services or mass media such as news internet 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 is optimized for algorithmic traders.
One approach to controlling the release of news can be an embargo. After the embargo is lifted for news event, reporters enter the release data into electronic format which will be immediately distributed in an exclusive binary format. The info is sent over private networks a number of distribution points near various large cities around the world. In order to receive the news headlines data as quickly as possible, it is vital a trader make use of a valid low latency news provider that’s invested heavily in technology infrastructure. Embargoed data is requested by 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 in order 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 every news outlet releases it simultaneously. This can be achieved 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 news is fed into an algorithm that parses, consolidates, analyzes and makes trading recommendations in relation to the news. The algorithms can filter the news headlines, produce indicators and help traders make split-second decisions to prevent substantial losses.
Automated software trading programs enable faster trading decisions. Decisions manufactured in microseconds may mean a substantial edge in the market.
News is an excellent indicator of the volatility of a market and if you trade the news headlines, opportunities will present themselves. Traders often overreact whenever a news report is released, and under-react if you find very little 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 a 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 got to 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 globe, traders may always find 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 headlines 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 perfect locations to position your servers come 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. Morgan Harvey You need to be close enough to the news headlines in order to act upon the releases however, close enough to the broker or exchange to get your order in prior to the masses looking to discover 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 news feed is made specifically for applications and is machine readable. Streaming XML broadcast is employed to produce 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 headlines 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. Thomson Reuters has a unique edge on global news compared to other providers being one of the very most respected business news agencies on the planet or even probably the most respected outside of the United States. They have the advantage of including global Reuters News for their feed as well as third-party newswires and Economic data for both 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 certainly to Know News, Dow Jones News and Rapidata which we will discuss further if they make information regarding their services more available.
Samples 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 an optimistic change. Historical analysis may reveal that the change is not as a result of seasonal effects. News feeds reveal that buyer confidence is increasing due the reduction in unemployment rates. Reports provide a powerful indication that the unemployment rate will remain low.
With this particular information, analysis may indicate that traders should short the USD. The algorithm may determine that the USD/JPY pair would yield probably the most profits. An automatic 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 to fall despite reports of unemployment improvement provided from the news headlines feed. Investors must remember that multiple factors affect the movement of the United States Dollar. The unemployment rate may drop, but the entire 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 ahead of a lot of the retail or smaller traders. Big player decisions may affect industry in an urgent way. If your choice is made 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 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 if you trade the news headlines, you can capitalize. You will find very few people that could argue against that fact. There’s undoubtedly that the trader receiving news data prior to the curve has got the edge on getting a solid short-term trade on momentum trade in several markets whether FX, Equities or Futures. The expense of low latency infrastructure has dropped within the last few years which makes it possible to subscribe to a low latency news feed and receive the data from the foundation giving a tremendous 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