Retail forex brokers and information portals have yet to pick up on the value of news or sentiment analysisbased on text as a driver of trading activity and another hook to websites and trading interfaces. This is astonishing given this group of firms is renowned for its innovation and there is no shortage of noise in the ‘big data’ space.
Yes, there are many brokers and platform vendors who think having sentiment data available to its clients would be ‘cool’ – either as a visual tool/infographic or as a data source for an automated trading platform/strategy. But I’ve yet to see any of the mainstream players actually do anything about it. Perhaps I’m wrong and if so, please point me in their direction.
But it’s neither here nor there whether there’s no-one doing it or just a couple. The fact remains it’s very few. Which leaves me with two questions… Why should the retail forex industry use news/sentiment analysis? And why aren’t they?
They should because (apart from the glaring point that if they don’t they’ll be left behind) it’s a new, exciting and uncharted territory for signal generation – either for automated platforms like MetaTrader, or for discretionary trading. You’d think with the number of retail FX brokers talking about a lack of trading velocity, or client inactivity, brokers would jump at the chance to do something new to trigger clients’ trades. Sure, it’ll never replace technical or fundamental analysis, but there is no way to capture the ‘wisdom of the crowd’ better than sentiment analysis, ie, what the market ‘feels’.
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Not only would the use of something new and innovative like this drive more trades, but it’ll make the broker or portal look good and may even help convince authorities that the industry is doing its best to stop clients losing money. Brokers could even use sentiment data to help them manage their risk books. And it doesn’t really matter what content is being analysed – it could be Twitter, it might be blogs like Seeking Alpha, Zero Hedge, Forex Factory, or just plain old news sources like Reuters, Dow Jones, The Times and so on.
So, why aren’t the incumbent brokers and information portals doing anything about it? Most likely because there are too many other fish to fry… Everyone is too busy coping with regulatory change, hunting for the perfect source of aggregated liquidity, client profiling to fit them all into the right risk book, trying to build the next Forex social trading solution and so on.
Understandable, I guess. But then again, if we don’t get those clients trading, there’s no flow to manage and no income to pay for those banner slots etc.
A word to the wise, though. Every man and his dog with a degree in a statistical discipline is becoming a Data Scientist thinking they can start up a text analysis service. Make sure to do your due diligence, which should include things like precision and recall percentages, consistency, the amount of archive (history) available, speed of analysis and reliability of service.