When it comes to information today, there's a never-ending stream available to traders, including a bevy of new non-traditional data sets known as alternative data.
Research from Dataminr and WBR Insights indicates that most traders are turning to alternative data for an edge: Nearly 80 percent of traders are incorporating non-traditional data into their investment decision-making.
However, a real challenge for traders resides in selecting the right information source that is non-disruptive to their current processes and supports their goals, whether it is gaining real-time insights, building better situational awareness, or making improved trading decisions.
When determining if an alternative data set is going to provide benefits to a trader's investment decision-making, here are a handful of questions to consider before going all in.
Can I Understand the Data?
For both ease of use and workflow integration, it's critical for traders to be able to decipher and digest information so they can move to the next step in their decision-making processes.
Unfortunately, that next step can stall if the alternative data arrives unstructured. Unstructured data can include multimedia, satellite imagery, social media posts, and sensor data—just to name a few examples. These types of alternative data sets can be difficult to digest for trading insights because they often need added structure or context to glean necessary insights.
For traders, minutes and even seconds can matter when making decisions. If the information you receive is too difficult to understand quickly, you can spend excessive amounts of time chasing insights, delaying action and eventually impacting results.
For example, tools that are able to sift through vast amounts of unstructured data using AI and related technologies can help you understand the information you need quickly. Dataminr's alerting tool for financial professionals, for instance, includes captions, context-rich, single-sentence summaries designed to help users process information more efficiently. Dataminr's captioned alerts help users contextualize breaking news events, allowing them to spend their time taking action, not deciphering content.
Will I Receive the Latest Information?
Data moves around the world in seconds. Traders who are able to find sources of alternative data that provide real-time information can gain a huge competitive advantage.
The key is knowing how to get real-time access to critical information. Trusted vendors like Dataminr facilitate access to real-time news, enabling financial professionals to know and act on market-impacting events earlier.
Ed Oliver, vice president of strategic accounts at Dataminr, shares an example of how traders can seize real-time data coming from breaking news on Twitter. Social media has become an increasingly popular source of real-time information because of its global accessibility and virtually instantaneous access to information.
"We've had a number of cases where a group of individuals saw a refinery, or some sort of gas installation, have a major disruption, like an explosion or fire," says Oliver. "They saw it, then they posted about it on Twitter, often with pictures or videos."
In this particular instance, Dataminr clients were able to get notifications of the incident, in real time, by on-the-ground eyewitnesses. From there, armed with the latest information, traders could use their time advantage to act before the news spread and the market saw the impact.
Can I Flexibly Integrate the Data?
Alternative data can provide traders with a new level of understanding about what's going on in the market, but only if that data is delivered properly. However, this is often a struggle: 59 percent of traders cited workflow integration as a primary challenge when consuming alternative data.
Flexibility matters here. Traders have to access and process a tremendous amount of critical information quickly, so easy integration into current workflows and tools is necessary.
That's why Dataminr offers a number of delivery methods for breaking news alerts, including web, email, mobile notifications, and APIs. Seamless integration of information is essential, especially when making quick, confident trading decisions.
Will I Find the Signal in the Noise?
In Dataminr's survey, nearly 30 percent of buy-side and sell-side firms spend in excess of $2.5 million per year on finding high-impact sources of alternative data. It's clear that alt data is an increasingly important way of supplementing more traditional forms of data.
However, another challenge is finding the signal in the noise: finding and receiving the right information when it's needed and at just the right moment in time. There is no shortage of available information, but having data that is uniquely valuable to your specific trading decisions can make a massive difference. All too often, that's not the case for many traders. In fact, 56 percent of those surveyed cited "too many data sources" as a hurdle.
Dataminr helps traders find that valuable information from a sea of noise. With its proprietary algorithms that incorporate artificial intelligence and machine learning technologies, Dataminr filters through a massive amount of information and issues custom information alerts. Traders will only receive information that can impact their portfolios.
When every second matters, not having to sift through piles of information can give a critical time advantage. Traders who can source, integrate, and understand alt data quickly will be best poised to reap its benefits and better align their investment strategies with results.