Wall Street Gets Techno

For me this is a great story to kick off 2011 with as it shows just how technology is creeping into our lives and all sectors; the traders on Wall Street are using technology to crunch something else; the news! Traders are using powerful computers to speed-read news reports, editorials, company web sites, blog posts and even Twitter; letting the machines decide what it all means for the markets. In some cases, the computers are actually passing writers' words, sentence structure, even the odd emoticon, a wink and a smile; all without human intervention, the programs are interpreting that news and trading on it. Though, given the unpredictability of the markets, there are concerns that computerised trading exaggerates the ups and downs and the idea that Wall Street is engineering big news sounds like an investor's nightmare.

Tech-savvy traders have been scraping data out of new reports, press releases and corporate web sites for years, and this digital development has been years in the making. It is part of the technology revolution reshaping Wall Street as this is a business where information is the most valuable commodity. Traders with the smartest, fastest technology can outsmart and outwit rivals. News agencies like Dow Jones, Reuters and Bloomberg have implemented the idea, offering services that help their Wall Street customers sift through news automatically. The computerised readers look beyond the numbers and analysing the market, that intuitive feeling investors have about the markets.

Working with academics at Columbia University and the University of Notre Dame, Dow Jones compiled a dictionary of about 3,700 words that can signal changes in sentiment. Feel-good words such as 'ingenuity', 'winner' and 'strength', while the feel-bad words include 'litigious', 'risk' and 'colludes'. The technology and software typically identifies the subject of a story and then examines the actual words. The programs are written to recognize the meaning of words and phrases in context, like distinguishing between 'terribly', 'good' and 'terribly good'. Bloomberg monitors news articles and Twitter feeds, using an algorithm that alerts its customers if a lot of people are suddenly sending Twitter messages about a particular topic.

Yet some sceptics warn of a growing digital divide in the markets as it's the well-heeled traders who can afford sophisticated technology who will have an edge over everyone else. It worries people that technology has skewed the playing field and will need the regulators to keep an eye on these high-speed traders. However, experts are not standing still and already talking about the next big thing for trading, that's programs to automatically digest broadcast and closed-caption television. Wall Street life reflects how more of everyday life is being digitised.

Photo credit: artemuestra