Experienced traders recognize the impact of global changes on foreign exchange (Forex/FX) markets, equity markets and futures markets. F...
Experienced traders recognize the impact of global changes on foreign exchange (Forex/FX) markets, equity markets and futures markets. Factors such as interest rate decisions, inflation, retail sales, unemployment, industrial production, consumer confidence surveys, business climate surveys, trade balance and manufacturing surveys influence currency movements. While traders could manually monitor this information using traditional news sources, profit from automated or algorithmic trading using low latency news feeds is an often more predictable and effective trading method that can increase profitability while reducing risk.
The faster a trader can receive economic news, analyze data, make decisions, apply risk management models, and conduct trading, the more profitable it can become. Automated traders are generally more successful than manual traders because automation uses a proven rules-based trading strategy that uses money management and risk management techniques. The strategy processes trends, analyzes data and executes trading transactions faster than a person without emotions. To take advantage of low-latency news feeds, it is important to have the right provider of low-latency news feeds, an appropriate trading strategy, and the right network infrastructure to ensure the fastest possible latency to the news source, to beat the competition in order entry and execution or when executing orders.
How do low-latency message feeds work?
Low latency news feeds deliver important economic data to demanding market participants for which speed is a top priority. While the rest of the world receives economic news through aggregated news feeds, traders of news services or mass media such as news websites, radio, or television rely on the lightning-fast delivery of important low-latency economic news. These include job figures, inflation data, and manufacturing indexes, directly from the Bureau of Labor Statistics, the Commerce Department, and the Treasury Press Room in a machine-readable feed optimized for algorithmic traders.
One way to control the publication of messages is to impose an embargo. After the embargo on news events is lifted, reporters enter the publishing data into an electronic format that is immediately distributed in a proprietary binary format. The data is sent over private networks to multiple distribution points near various major cities around the world. To get the message data as quickly as possible, it is essential that a trader use a valid, low-latency news provider that has invested heavily in the technological infrastructure. Embargoed data is requested by a source not to be published before a specific date and time, or only if certain conditions are met. The media will be informed in advance in order to prepare for publication.
News agencies also have reporters in sealed government press rooms during a certain lockout period. Lock-up data periods only regulate the publication of all news data, so that each news agency publishes it at the same time. This can be done in two ways: "finger pressure" and "switch release" are used to regulate the release.
News feeds contain economic and corporate news that influences trading activities worldwide. Economic indicators are used to facilitate trade decisions. The messages are fed into an algorithm that analyzes, consolidates, analyzes, and makes trade recommendations based on them. The algorithms can filter the messages, create indicators and help traders make decisions in a fraction of a second to avoid significant losses.
Automated software trading programs enable faster trading decisions. Decisions made in microseconds can be a significant market advantage.
News is a good indicator of the volatility of a market, and when you trade the news, there are opportunities. Traders tend to overreact when a news report is published and to underreact when there are very few messages. Machine-readable messages provide historical data on archives that allow traders to check price movements against specific economic indicators.
Each country publishes important economic news at certain times of the day. Advanced traders analyze and execute stores almost instantly when the announcement is made. Instant analysis is enabled by automated trading of low-latency news feeds. Automated trading can be part of a trader's risk management and loss-avoidance strategy. Automated trading uses historical back tests and algorithms to select optimal entry and exit points.
Traders need to know when the data will be published to know when to monitor the market. For example, important economic data in the United States will be released between 8:30 a.m. and 10:00 a.m. EST. Canada publishes information between 7:00 a.m. and 8:30 a.m. As currencies span the world, traders can always find a market that is open and ready to trade.
A SAMPEL of key economic indicators
Consumer price index
Labour Cost Index
Employment
Producer price index
Productivity and costs
Real merits
U.S. Import and Export Prices
Employment and unemployment
Where do you set up your servers? Key geographic locations for algorithmic trading strategies
The majority of investors trading in the news want their algorithmic trading platforms to be hosted as close as possible to the news source and execution site. Common distribution for low-latency news feed providers worldwide include: New York, Washington DC, Chicago, and London.
The ideal locations for placing your servers are located in well-connected data centers that allow you to connect your network or servers directly to the actual newsfeed source and execution location. There must be a balance between distance and latency between the two. However, you need to be close enough to the news to respond to the releases, and close enough to the broker or stock exchange to place your order in front of the crowd looking for the best cast.
Low latency newsfeed providers
Thomson Reuters uses proprietary, state-of-the-art technology to produce a low-latency news feed. The newsfeed has been developed specifically for applications and is machine-readable. Full-text and metadata production uses a streaming XML transfer to ensure that investors don't miss an event.
Another News feed by Thomson Reuters reports on macroeconomic events, natural disasters and violence in the country. An analysis of the messages is published. When the category reaches a threshold, the investor's trading and risk management system is notified to trigger an entry or exit point from the market. Thomson Reuters has a unique advantage in global news compared to other providers, as it is one of the most respected economic news agencies in the world, if not the most respected outside the United States. They have the advantage that they can include news from third parties and economic data in their feed sourly for both the United States and Europe, as well as global Reuters News. Another important news event is the University of Michigan Survey of Consumers report, which publishes data twice a month. Thomson Reuters has exclusive media rights to the University of Michigan data.
Other low-latency news providers include Need to Know News, Dow Jones News, and Rapidata, which we'll discuss in more detail when providing information about their services.
Examples of news affecting markets
A newsfeed can indicate a change in the unemployment rate. For the sake of the scenario, unemployment rates will have a positive change. A historical analysis may show that the change is not due to seasonal effects. News feeds show that buyer confidence is rising as unemployment rates fall. Reports provide a strong indication that the unemployment rate will remain low.
Given this information, the analysis may suggest that traders should sell the USD. The algorithm might find that the USD/JPY pairing would yield the most profits. An automatic trade would be executed when the target is reached, and the trade would be switched to autopilot until the deal is completed.
The dollar could fall further, despite reports of an improvement in unemployment coming from the news feed. Investors need to bear in mind that several factors influence the movement of the US dollar. The unemployment rate could fall, but the economy as a whole could not improve. If larger investors do not change their perception of the dollar, the dollar could fall further.
The big players will usually make their decisions before most retailers or smaller retailers. Decisions by the major players can influence the market in unexpected ways. If the decision is taken only on the basis of information from unemployment, the assumption is wrong. Non-directional bias assumes that every important message about a country creates a trading opportunity. Directional distortions in trade take into account all possible economic indicators, including the reactions of key market participants.
Trading in the news - The conclusion
News moves the markets, and if you trade the news, you can capitalize on it. There are few of us who can argue against this fact. There is no doubt that the trader who receives the news data before the curve has the advantage of getting a solid short-term trading on momentum trading in different markets, whether it is foreign exchange, stocks or futures. The cost of a low-latency infrastructure has fallen in recent years, making it possible to subscribe to a low-latency news feed and get the data from the source, which offers a huge advantage over traders watching TV, Internet, radio, or standard news feeds. In a market driven by big banks and hedge funds, low-latency news feeds give even individual traders a huge advantage over large companies.
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