Is "Big Data in the Cloud" Tomorrow's High Frequency Trading Edge?

Earlier this month at the A-Team Low-Latency Technology Summit in NYC, I participated in a panel discussion addressing the issue of where trading strategies are headed. The panel’s thesis was that low-latency architectures are now commonly available to all traders, effectively neutralizing the benefits firms had originally enjoyed by being early adopters of low-latency technologies. Essentially by understanding a bit of micro-market structure and having a faster set of trading technologies, it was fairly easy to make a quick-buck trading. Perhaps that statement oversimplifies things, but there’s no doubt it is more difficult than ever before to make money in high-frequency trading strategies.

The A-Team panel consisted of an interesting mix of perspectives including a market data feed handler specialist, a colocation provider (me), a database guru, and a big-data information company. While the team all came at the question from very different angles, what we did manage to agree on was that the trading strategies of today and in the future will be based on an increased amount of information. But it just isn’t practical for every firm on the street to capture and process content themselves from the basic building blocks. The trading technologies of the future will be based upon an integration of "pre-processed" trading signals gathered and analyzed by service providers or specialized software applications run in the cloud.

One "next generation" firm, Selerity, extracts machine-readable events from unstructured social media events. Some of these are quite straightforward, such as extracting earnings information from a press release. (Telsa is an equally good example, driving share prices up 25% almost instantly). But in the open internet there are inherent dangers even when you know the source of the content…or think you do. The panel talked at length about a hacker who highjacked the Associated Press's Twitter account announcing that the White House had been bombed. This sent the market into a nosedive for a number of minutes until traders figured out it was a hoax.

So what will the trading strategy of the future be based on? Only time and hindsight will tell us for sure. As Yogi Berra famously states: "It's tough to make predictions, especially about the future."