Garbage in garbage out is a self evident axiom of our computer age, and it certainly applies to the data traders depend on to make trading decisions.
While you can get a wide variety of data for free on the Internet, that data is delayed and basic. Any serious trader will need to get their data from a reliable data vendor. Each trader has his own requirements for what kind of data he needs. “Some of our traders rely exclusively on fundamentals while others are technicians looking for the latest charting and technical analysis tools, while others combine both,” says Mike Felix, director of marketing at Townsend Analytics, a Chicago-based data and trading technology provider.
Townsend offers tools and support services for institutional and retail brokerage firms and their customers; and it has multiple product lines of trading, data and risk management services. Townsend’s flagship RealTick trading platform combines trading, data and analysis tools on a single platform.
“The key for a novice is that they have a data platform that’s easy to use, something that provides basic features and functionality,” Felix says, adding that it helps if it’s
customizable and in a very user-friendly format.
For many client-based software platforms, the data provider or broker dealer should be able to provide the user with some basic templates, which then can be customized further based on the user’s goals and objectives.
Each trader is unique, be it based on strategy, assets traded or regions such as U.S. or non-U.S. markets. Also, a trader’s experience level and his scope of trading comes into play. A basic set of data may not fit the needs of every trader. Felix says there aren’t many data vendors that cater to both retail and institutional traders because institutional traders pay a premium for the speed and accuracy of their data.
“Experienced traders will want to get the most out of their data vendor and should look for someone who will provide more than just basic data. Even if the trader is a novice and only needs basic data for now, he is going to gain experience and may want more sophisticated data in the future,” says Felix.
Townsend offers streaming data and historical data. It also offer news, research and what it calls value added data. Townsend takes the raw data feed that it gets directly from the exchanges and performs additional calculations to increase its value before it’s distributed to the end user.
“When you get the streaming data that’s distributed by the exchanges, it’s just price and volume updates. To find trading opportunities, you may want to look at filtered data such as which securities are exhibiting 52-week highs and lows, and percent gainers to compare current price ranges, etc.
Bob Pelletier, CEO of Commodity Systems Inc. (CSI), a vendor of summary end-of-day world financial market data, agrees that performing studies on raw data enhances its value. CSI offers historical coverage of all commodity markets
worldwide, and more than 99% of the markets it covers extend from the first day of trading. The breadth of futures information includes commodities, currencies and world stock indexes; and CSI’s flagship product, Unfair Advantage, offers charting and analysis CSI offers correlation reports, which a trader could use gauge the relationship between a commodity price and the stock price of a firm that uses or distributes that commodity. “When high-grade copper is expensive, the companies that make air conditioners are going to drop in price because the material costs are so [high],” Pelletier says.
It is also important to find out what markets a data vendor covers. “A lot of traders select a specialized vendor that only offers limited asset classes,” Felix says. “And then when they’re ready to expand their trading strategies, they have to find a new vendor. You don’t want to keep learning new programs.”
Townsend offers data for a equities, futures, forex, fixed income and options listed on every U.S. and Canadian exchange and every major European exchange. “It’s all about becoming global. That’s the next step,” Felix says.
Accuracy and speed should also be taken into consideration. “If you’re testing data, you want it to be correct when you initially receive it,” says Pelletier. “Traders also want someone who delivers data quickly, and to be able to pick up the phone and call someone if something does go wrong.”
A data vendor has to keep up its infrastructure. “Quote rates are sky rocketing; and that’s putting severe pressure on data vendors especially in the options market,” Felix says. “We’ve recently measured close to 300,000 quotes per second (qps) coming into our data centers.” He adds the number is up from 40,000 qps, which was considered a huge number just a few years ago. Its current infrastructure should soon be able to handle 1 million qps.
Another value added service some vendors offer is full depth of book from the various markets. This gives the trader valuable information to see where the market is heading. Basic service provides the “top-of-book,” which displays the last price executed for a security and data related to the last price. Full depth of book shows all existing bids
and offers for a given security, usually organized into color-coded pricing tiers. This additional data can help make better trading decisions.
After narrowing his list of data vendors to a few, a trader should test each system. Many data vendors offer trial periods and traders should take advantage of that opportunity.