Max Bowie: When Just Following the Numbers Isn’t Enough

While much of the market data industry’s focus in recent years has been on sexy new technologies like ultra-low-latency feeds for high-frequency trading and exotic new geographies like Asia-Pacific or Latin America and Brazil (see June’s column) the realization that economic woes can’t be overcome in the long-term by trading faster or in foreign growth markets instead is prompting traders and investors to seek out intelligent information that provides insight.

The signs are that the current economic environment is creating even more demand for tools that give traders and investors an edge through insight and commentary. According to a recent survey by investment management consultancy Investit, senior investment managers are less confident of the business environment now than they were at the start of this year. In January, 97 percent of respondents surveyed by Investit expressed confidence about the year ahead—though this had dropped to 77 percent by last month.

Underlying this fall in confidence are public concerns over sovereign debt—not just the beleaguered Greek economy, but also in the US, where ratings agencies placed the nation’s debt under review, citing the “rising possibility” that the government would not raise the country’s debt ceiling in time to prevent a default on its treasury obligations—and that the recovery of the past two years may have been a respite between symptoms rather than a cure.

This uncertainty is causing investors—both private and institutional—to change their trading habits. In its first-half trading statement, Börse Berlin noted that equities trading—usually the staple of private investors—declined by 7.6 percent as a share of the exchange’s overall business, while the number of bond trades grew by 26 percent, which the exchange attributed to investors becoming increasingly fearful of the Greek debt crisis and the potential for global inflation.

Meanwhile, a survey of investor education practices by technical analysis software vendor Recognia shows that while active traders are more confident about managing their own money, they are increasingly looking for effective tools to educate them about new trading strategies and risk management.

Ironically, according to Investit, “the near-universal business response” to the changing climate is for firms to look for opportunities to expand into new markets, while trying to understand which products are profitable or not—both of which require a keen understanding of markets and products that may be new to the individuals responsible.

These trends leave investors caught in the middle, trying to understand the dynamics of a market that may be completely new to them, and where data alone is no use without the tools to interpret it correctly.

Hence new initiatives—such as Bloomberg Industries, which provides industry- and company-level research and analysis, or Warburg Pincus-backed fixed-income and derivatives startup Benchmark Solutions, which finally broke cover last month with its feed of prices for over-the-counter (OTC) asset classes derived and calculated from multiple inputs in real time—should be sitting pretty at a time when firms and investors are in dire need of tools that consolidate relevant information and make sense of it.

Added Twist
Meanwhile, continually rising market data volumes provide an added twist, making it ever-more important to be able to understand data—which means being able to wade through vast quantities of information with a fine-tooth comb at equivalent speeds.

Hence, tools like New York-based Trade Alert’s instant messaging alerting function, which identifies relevant information about trading activity and provides it in a quick and easy-to-digest format—or content and services from Hanweck Associates; Houston, TX-based data visualization provider Aqumin; and startup CB Insights, which were identified as noteworthy companies in the recent Accenture and New York City Investment Fund-sponsored FinTech Innovation Lab—become increasingly valuable to traders looking for important nuances that give them an edge and help them spot trends that might not be apparent from the numbers alone.