Friday, July 06, 2007

Trading on News

Follow the money, if you want to know where the action is in AI (and most other things). Trading houses are buying tagged news feeds so that they can process them as input for algorithmic trading. That'sll have to be a pretty smart news reader.

The Economist story that reports this development contains these factoids:
  • Algorithmic trading accounts for a third of all share trades in America
  • The Aite Group reckons it will make up more than half the share volumes and a fifth of options trades by 2010
  • The new London Stock Exchange system catering to the growth of algorithmic trading cuts trading times down to ten milliseconds; on its first day, it processed up to 1,500 orders a second, compared with 600 using its previous system
The story closes with the observation that "the news may come from reading the algorithmic trades, not the other way around," because these systems may be able to spot early price signals of a takeover decision before it's announced.

Taken a step further, I can imagine the trading houses selling re-tagged news feeds back to Dow Jones and Reuters. Suitably anonimized, aggregated, and delayed to protect the individual movers, information on which news items triggered trades would be useful at second order. And then the news providers can sell the re-re-tagged feeds to the traders, who'll then sell back the re-re-re-tagged . . .

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