Algorithmic trading makes up an ever-increasing component of the equity trade volume. Aite Consulting estimates that machine-based, algorithmic trading will comprise 1/3rd of all U.S. equity trade volumes this year, growing to more than 50% by 2010. There are many reasons for this trend:
- More sophisticated algorithms and back-testing methods
- Availability of massive computing storage and processing power at fractional costs
- Bifurcation of alpha vs. beta generation strategies
In any event, whether you agree with Aite group's estimate or not, algorithmic trading is certainly on the rise and will continue to become more sophisticated as large institutions and firms with high trading volumes search for ways to optimize performance.
Today, Reuters announced two services that, over time, could fundamentally change the way algorithmic trading occurs; and in fact it may help bridge the gap between the pure quant models that dominate algorithmic trading now with the more traditional, bottoms-up fundamental analysis that many active fund managers (my partners and I included) utilize.
Reuters, the global information behemoth, has launched two services, Reuters NewsScope Real-Time and Reuters NewsScope Archive that, together, are an important step in making unstructured textual information usable in a machine oriented quant model.
As an advocate of social software, and the power of services like Digg, del.icio.us, Technorati and others, seeing a major source of financial news embrace metadata and contextual tagging at such a core level is wildly exciting.