This discussion is vital because, while it may have been neglected by financial technology innovation in the past, financial research is one of the fundamental data sources for decision making in the financial markets.
We think about financial decision making as resting on a three-legged stool.
The first leg is raw market data. This is the form of price data which most readily springs to mind when we think about financial market decision making. It was the first area to see technological innovation and has seen the most progress to date. This is because it is the most clearly ripe for automation and digitisation, given the structured nature of the data.
As a result, firms have invested billions in low latency market data processing which enables sophisticated quantitative modelling and automated trading strategies which are operating across almost every market.
More recently, we’ve seen innovation in the second leg of this stool – breaking news. Key events – be they political, economic, company news or even a natural disaster – have an impact on market activity, sometimes quite dramatically. It was therefore only a matter of time before institutions and news providers looked at ways to integrate breaking market news into their financial market models.
Of course, Refinitiv (formerly known as Reuters) and Bloomberg terminals have been a mainstay of trading desks for decades, but now firms are using algorithms to transform headlines into data which can be utilised by both human traders and algorithms, to drive trading decisions.
The development of tools to better handle market data and breaking news have transformed, and continue to transform, the way activity in the financial markets is conducted. However, financial research and analysis (no less important as a source of information) has seen comparatively little to no innovation in the last few decades.
Financial research provides a vital role in placing the insights generated from market data and breaking news into a wider context. It gives traders the perspective to understand the importance of the other information they are handling while also providing a framework for decision making. That’s why it functions as the third vital leg of the stool, without which effective decision-making will always be suboptimal.
Imagine if financial market participants’ only source of breaking news was still picking up a copy of the Financial Times on the way to work; or if the only source of trading data anyone could access was a spreadsheet of prices at market close. Yet, with the majority of financial research consumed as multiple page PDF and HTML documents sent via email, this is effectively the world we live in when it comes to financial research.