Fake News is not a new phenomenon in the financial markets. And, should not be ignored by traders. Andrew Lane, CEO of sentiment-based technology company Acuity Trading, explains.
Andrew Lane, Acuity Trading
A familiar, renewed sense of optimism for the forthcoming New Year is filling social media profiles the world over whilst, perhaps more notably, are the pleas for an end to 2016.
Marred by BREXIT and Trump’s presidential election win, 2016 will undoubtedly be remembered as the year of political shock. With experts continuing to analyse these unexpected outcomes to the traditional polls, Fake News continues to be the last enduring scandal of the US Election.
Much has already been written on this subject and in particular, the role and responsibilities of the technology giants in dealing with Fake News from both domestic and suspected Russian-funded sources. Of more interest to us at Acuity Trading is the validity of fake news in the financial markets and in particular, in electronic trading and news analytic tools such as ours that are driven by news.
However, and perhaps a surprise to some, Fake News is not a new phenomenon in the financial markets. Although this has more traditionally been known as ‘rumours’, a familiar adage “Buy the rumour, sell the fact” has been bounded around by traders for decades in recognition of the fact that prices in the financial markets are moved by rumours.
More recently though, it is the digital era and news tools such as Twitter and Facebook that has facilitated the spreading of these rumours at such ease and pace. The US Election also demonstrated just how widespread this practice has now become too.
Controversially, just because large volumes of news being published and shared is considered fake, it doesn’t mean that it isn’t of interest to a trader. Accepting that news will move markets, being a successful trader means being able to preempt the movement, not be the arbiter of whether the movement is based on rumour or fact. Therefore, tools like the ones by Acuity are as valuable to traders as they were before Fake News was thrust in to the media spotlight. Being able to to indicate how the financial community is feeling towards the news – real or fake – and what the likely market reaction of the market will be are arguable more valuable now than before. Consumers of traditional news feeds alone – ones which don’t carry fake news – could be left trading in the dark. At least until the problem of fake news is resolved.
Collectively, we need to do a better job of understanding how fake news fits into trading patterns and how technology can be used to minimise its impact. Having visibility of the stories driving the big data technologies will offer greater clarity on what’s moving the markets but traders could lose the edge these tools are designed to bring if they spend too long determining whether a story is real or fake. If the stories are out there, the markets are likely to react irrespective of the truth.