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When North Korea launched a missile over the Japanese island of Hokkaido in late August, the news quickly impacted the value of the Japanese yen and reverberated across FX markets.
Before the story flashed across the television or trading screens, FX traders with access to alternative sources, such as curated insights from Twitter, learned about the missile via the initial Tweets—translated from Japanese—warning locals to take cover.
Alternative data—which refers to data and information outside of the usual scope of securities pricing, company fundamentals, or macroeconomic indicators—is playing an increasingly important role for asset managers, traders, and decision makers. Among investors recently surveyed by Greenwich Associates, 80% indicated that they wanted greater access to alternative data sources.
Investors are also incorporating more unstructured data into their trading decisions. In a recent EY survey of hedge fund managers, respondents ranked social media as the top category of alternative data currently in use or slated to be in use within 12 months.
In fact, more than a social network, Twitter is a global clearinghouse of information that offers a timely and nuanced view on virtually every topic and event. Sources, meanwhile, run the gamut, from reporters at traditional news outlets, to government officials, company leaders, and individuals who happen to be in the right place at the right time.
This reality isn't lost on FX traders, who have long understood the value of getting ahead of any information that influences currency markets. Yet, the very thing that makes Twitter so powerful—hundreds of millions of Tweets a day from countless sources—is also its limitation: It's difficult to pinpoint where or when relevant news will break, and targeted keyword searches or well-curated Twitter feeds can easily miss the mark.
In the case of the missile launched over Japan, for example, FX traders in London likely
weren't following or searching for Tweets written in Japanese related to a small island in
Japan. Likewise, when 10 Downing Street held an unscheduled address from Prime
Minister Theresa May last April, FX traders in New York might have overlooked the
event had they not been alerted. May's announcement that day of a snap election sent
the British pound soaring to a six-month high.
Pinpointing Signals, Tuning Out the Noise
The challenge for many investment professionals then is how to incorporate new data sources into existing investment decision workflows. It requires a trusted source that can push relevant information through a sea of online noise and provide early, reliable, and differentiated insights. This is particularly key for FX traders who need to synthesize information across many different facets of global markets.
This is where alternative data platforms come into play: Using proprietary algorithms tailored to specific areas, they can quickly identify, translate, and alert users to relevant social media insights.
To ensure that social data is a tool rather than a distraction, Dataminr for Finance structures information several different ways, including by sector, region, and topic—such as a live event, economic report, or ongoing news story. Alerts are further classified by source, so FX traders can quickly determine whether an alert is based on, say, chatter versus a government official.
Users then customize alerts based on their preferences, and integrate them into their existing workflow. The upshot: Traders can see social alerts within the context of traditional data and quickly act on alternative insights as events unfold. With advanced information in hand, FX traders can exercise decisive, real-time decision-making to remain steps ahead of competition and market swings.