Edward Oliver, Vice President, Finance Sales, Dataminr
The US housing market collapse and the 2008 financial meltdown have served as a hauntingly recent reminder of our market’s fragility. Headlines constantly threaten “the next financial crisis”, striking fear into the hearts of traders, bankers and savers alike. In hindsight, it is easy to say we should have seen these events coming, and traditional data sources at the time were unable to fully articulate the story, quickly enough, before it was too late.
The wake of a huge crisis is often a time for reflection and re-evaluation of how things are done, and the way in which we gather data understand events has changed dramatically in the past decade.
You will struggle to find anything that is monitored on such a granular level as financial markets; every peak, trough and divergence is dissected in molecular detail. However, as the world becomes increasingly connected and open, investors and traders alike understand that information is their currency – and the analysis of alternative data has become vital to their day-to-day activities.
Access to these data and information streams could be the differentiating factor between a successful investment and a failed strategy. As this is recognised across the industry, investors are rapidly implementing unconventional sources, such as social media, to their investment decision making.
The News Evolution
Technology has completely changed the face of financial services on multiple occasions, and it is becoming common practice for satellite, weather and social media data to sit alongside more traditional market data sets. The news landscape is also evolving in this manner, and is reflected in how the two sectors interact.
For example, if we look back to as recently as March 21st 2018, we can see a direct example of alternative data in action. On this date, the EU greenlighted Bayer’s $66 billion acquisition of the agricultural company Monsanto. Prior to the formal announcement being made, the first rumblings of the go-ahead were detected through Twitter, when a reporter tweeted about a forthcoming announcement from their pressroom. As momentum around this announcement began to build online, traders plugged into the relevant social feeds had the ability to take advantage of this knowledge before their competitors.
It has been known for some time now that the days of reading the morning papers for stock price updates, and using online breaking news to inform trading opportunities are long gone. Once a story has broken, it is too late to capitalise on it. Having an acute awareness of trends and real-time information on social media gives traders the ability to consume news at the source, often ahead of time, setting them ahead of the curve.
Keeping your information edge
While markets undulate at breakneck speeds and a beat of the proverbial butterfly’s wings can have a dramatic knock on impact across an investor’s portfolio, the one thing that holds true is that data is king.
Increasingly, financial data has become readily available and democratised across the entire industry. It is no longer an advantage to “know”, investors must now “know first”. It is here that differentiation is vital. Investors who embrace unconventional data sets and information sources to sit alongside their more traditional market data are placing themselves one step ahead of the competition. Not just this, but investors will be able to fully inform themselves before deciding which securities they are buying, gaining a better understanding on risk factors.
The introduction of alternative data is having a huge impact in the financial services industry, with professionals not only able to access relevant information at unprecedented speeds, but also gain a full understanding of how traditional and alternative datasets can be used in conjunction to reveal opportunities like never before. In this way alternative data is providing new and differentiated insight as it happens, providing the much needed edge in an increasingly democratised information landscape.