Experienced traders recognize the consequences 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 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 can increase profitability while reducing risk.
The faster a trader can receive economic news, analyze the information, make decisions, apply risk management models and execute trades, the more profitable they could become. Automated traders are generally more successful than manual traders because the automation will work with 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 without any emotion. In order to take advantage of the low latency news feeds it is important to really have the right low latency news feed provider, have an effective trading strategy and the correct network infrastructure to ensure the fastest possible latency to the news headlines source to be able to beat the 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 portion 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 count 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 is definitely an embargo. After the embargo is lifted for news event, reporters enter the release data into electronic format which will be immediately distributed in a proprietary binary format. The information is sent over private networks to several distribution points near various large cities across the world. In order to receive the news headlines data as quickly as you are able to, it is important that the trader work with a valid low latency news provider that has invested heavily in technology infrastructure. Embargoed data is requested with a source to not be published before a certain date and time or unless certain conditions have already been met. The media is given advanced notice to be able 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 most news data so that each news outlet releases it simultaneously. This can be done 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 upon the news. The algorithms can filter the news headlines, produce indicators and help traders make split-second decisions to prevent substantial losses.
News is a great indicator of the volatility of a market and if you trade the news headlines, opportunities will present themselves. Traders have a tendency to 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 part of a trader’s risk management and loss avoidance strategy. With automated trading, historical back tests and algorithms are utilized to pick optimal entry and exit points.
Many investors that trade the news headlines seek to have their algorithmic trading platforms hosted as close as you are able to 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 have been 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. You need to be close enough to the news headlines to be able 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.
Another Thomson Reuters news feed features macro-economic events, natural disasters and violence in the country. An analysis of the news headlines is released. Once 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 includes a unique edge on global news compared to other providers being one of the most respected business news agencies in the world if not the most respected outside the United States. They’ve the benefit of including global Reuters News to their feed along with 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.
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 because of seasonal effects. News feeds reveal that buyer confidence is increasing due the reduction in unemployment rates. Reports provide a pow real raw news erful indication that the unemployment rate will remain low.
The big players will typically make their decisions prior to all of the retail or smaller traders. Big player decisions may affect the market in surprise 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 nation will create a trading opportunity. Directional-bias trading accounts for all possible economic indicators including responses from major market players.