Wall St. Computers Read the News, and Trade on It

Andy Nguyen · 12/21/10

The number-crunchers on Wall Street are starting to crunch something else: the news.
Math-loving traders are using powerful computers to speed-read news reports, editorials, company Web sites, blog posts and even Twitter messages — and then letting the machines decide what it all means for the markets.

The development goes far beyond standard digital fare like most-read and e-mailed lists. In some cases, the computers are actually parsing writers’ words, sentence structure, even the odd emoticon. A wink and a smile —

— for instance, just might mean things are looking up for the markets. Then, often without human intervention, the programs are interpreting that news and trading on it.

Given the volatility in the markets and concern that computerized trading exaggerates the ups and downs, the notion that Wall Street is engineering news-bots might sound like an investor’s nightmare.

Read the full article at Wall St. Computers Read and Trade on the News - NYTimes.com

tylor · 12/21/10

that's interesting. Ernie Chan mentions this in his book (Algorithmic Trading), however, i remember him saying it hadn't quite worked. i suppose he wrote the book 2 years ago now, i wonder if technology has just advanced that fast...

MSFHQ · 12/21/10

One step closer to Cyberdyne becoming self aware...

Andy Nguyen · 12/21/10

Ernie Chan's book targets independent, individual traders and according to this article, they probably won't be to afford the technology.

But some warn of a growing digital divide in the markets. Well-heeled traders who can afford sophisticated technology have an edge over everyone else, these people say.

There are just too much information out there daily to digest. Most of them are noise anyway so human will never be able to do much.

The computer-savvy traders known as quants are paying attention. According to Aite Group, a financial services consulting company, about 35 percent of quantitative trading firms are exploring whether to use unstructured data feeds. Two years ago, about 2 percent of those firms used them.
Quants often use these programs to manage their risks by, say, automatically shutting down trading when bad news hits.

jonjaffe · 12/22/10

Trading on written news / news feeds has been going on for years (google search it, maybe ~10 years?) but now the news algos are predicting sentiment! Via facebook, twitter, of course

Andy Nguyen · 12/22/10

Ah, Jon mentioned Google and I thought I read in an article recently from someone at Google on why they didn't go into trading themselves. The answer Google gave is that since it have ways to index news and can predict certain things, it may not be legal for them to take advantages of that.
Scary.

Scooot · 12/22/10

http://noir.bloomberg.com/apps/news?pid=20601087&sid=a0HeKpjwajW8&pos=7#

Dec. 22 (Bloomberg) -- Derwent Capital Markets, a family- owned hedge fund, will offer investors the chance to use Twitter Inc. posts to gauge the mood of the stockmarket, said co-owner Paul Hawtin.

The Derwent Absolute Return Fund Ltd., set to start trading in February with an initial 25 million pounds ($39 million) under management, will follow posts on the social-networking website. A trading model will highlight when the number of times words on Twitter such as “calm” rise above or below average.

Stuart Truax · 12/22/10

Andy Nguyen said:
Ah, Jon mentioned Google and I thought I read in an article recently from someone at Google on why they didn't go into trading themselves. The answer Google gave is that since it have ways to index news and can predict certain things, it may not be legal for them to take advantages of that.
Scary.

Andy,
Are you implying that Google thought they might be able to influence market sentiment before the fact by choosing which articles to display, thereby influencing prices?

Andy Nguyen · 12/22/10

Stuart,
I meant that as the largest web crawler on Earth, Google has the unique ability to read a massive amount of text everyday. If Google decides to make money out of this, they can.

timedout · 1/8/11

Renaissance Technologies uses some kind of news aggregation/analysis (last I heard). Not sure of its cost benefit.

Google is probably restricted from trading itself, but I am sure they could provide some kind of "news market data" if they wanted to.

That would be pretty sweet... actually.