Last month, Gareth (not his real name) creamed a 6-digit profit from his NYSE:AMC position. A short-term trade where he held his position for just 2 days, a 22% pop added meaningfully to his personal trading account. Back when he used to run the London equities S&T desk for a European Investment Bank, discretionary fast-money accounts he used to cover would execute trades like this once a quarter at best.
Enter the realm of alternative market and fundamental data – everything from short interest, telegram chat signals, brand level search volume to real time retail footfall. “US Funds have had a clear lead in this domain and there are many Chinese tech players and robo-investing firms that are tapping into these as well. Europe still lags. The biggest change however is the way prosumers or retail investors are now getting access as well. In Asia, they [family offices and traditional funds] haven’t even got their head around how to get or use such data.” said Gareth.
What prompted Gareth’s trade, was a buy signal across a consolidation of Wallstreet Trading groups on Telegram. Between the 25th of May and 27th of May, the volume of unique individuals discussing AMC registered 3 consecutive days of increase and surpassed the trailing 3-mth peak. At the same time, sentiment tracked through natural language processing of chat conversations on these groups suggested that the retail trading community was going long. What followed after, was history as the retail trader community moved on with their short squeeze that drove AMC’s share price to double between the 28th of May and 2nd of June.
“In some discretionary funds today, you will have teams of data scientist analyzing such data to find trade opportunities. But these are not rocket science and the tech folks out there have made these into SaaS platforms accessible to practically everyone.” Gareth shared. An example is Marketpulse, which is available for free.
While many fund managers are still spending tens of thousands buying seats on Factset, Bloomberg and spending thousands hiring research analyst; there have been a realization of late that financial analyses tend to be backwards looking. Even for fundamental investors, there is recognition among US and Chinese funds that sources of Alpha reside in being able to uncover a differentiated view on individual stocks through unique datasets that either tracks capital market sentiments (e.g. telegram conversations, 13F filings of hedge fund trades) or operating fundamentals
Perhaps, the consumerization of data analytics is starting to level the playing field between institutional and retail investors. As data and analytics vendors grapple with long sales cycles to institutional funds and the hefty cost of account management, the budding community of retail investors naturally become an attractive new pool of customers. Afterall, recent events have showed that retired professional traders like Gareth and young traders who have gotten a taste of beating large hedge funds at their own game – well, they are not quite the dumb money of yesteryears anymore.
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