How Alternative Data Can Accelerate Trading Even in Bear Markets

Market Commentary
March 14, 2023

By Acuity Trading

A bear market typically occurs every 3.6 years and lasts for about 9.6 months. Declining markets may cause nervousness among your clients, discouraging them from trading. It can be challenging for traders, especially beginners, to recognise trading opportunities. A bear market can quickly turn into a dry spell for your brokerage revenues.

It is during times like this that your clients need more support. You can reassure them of bear markets presenting attractive trading opportunities that they can identify and take advantage of. This is where brokerages can use alternative data to aid their traders, boosting engagement and activity on your trading platform. You can easily add tools that leverage alternative data and enrich your arsenal of signals, which will improve your platform’s earnings in bear markets and in the long run.

 

The Power of Alternative Data for Brokerages

The alternative data market size is projected to reach $149.1 billion, expanding at a whopping CAGR of 54.92% from 2022 to 2030. Here are top 5 reasons to include alternative data for analytics:

  • It helps uncover the ground reality of economic data releases, their impact on trader sentiment, and speculation in the market. 
  • It is a leading indicator of what to expect from various lagging indicators, such as GDP reports, inflation updates, unemployment data, and business earnings reports.
  • It gives your traders an opportunity to build an adaptive portfolio that they can manage better during both bear and bull markets. They are able to adjust their portfolio diversification based on market volatility. 
  • Early insights can help traders identify risky situations and strengthen their risk management strategy to prevent losses. This helps your brokerage retain clients for longer.
  • Finally, it can place your brokerage among the market leaders that offer unique insights and analysis. 

It’s a simple equation. More trading opportunities = more trading activity = better revenues for your brokerage.

 

How to Get Reliable Alternative Data?

Technologies like web scraping and web crawling help dig out relevant information from the most unexpected data sources. Machine learning helps iron out unstructured data in a quantifiable and relatable manner. Advanced applications of AI/ML help generate actionable insights for traders. Technologies like IoT and big data analytics help remove the noise and extract the relevant information. 

Alternative data is sourced from social media, geo-location data, payments by big companies, credit card transactions of influential individuals, transactions at points of sales, satellite imagery, and more. Although they may seem disconnected from price charts on your platform, the growing popularity of alternative data underlines the efficacy of information extracted.

Using multi-asset data and depicting the same via visual tools can help traders recognise opportunities early. Brokerages can use such information to deliver timely updates directly to traders via an SMS on their mobile phone or emails to their inbox.

 

How to Enable Traders to Use Alternative Data?

Here are a few ways to leverage alternative data:

Leverage Unpopularity

Social media presence, customer feedback, and their direct sales and profits may provide insights into the brand’s competitiveness and their potential to offer outsized returns. Their inventory size, clearance sales, and chatter around their products can help traders invest in companies that are poised for growth and even make decisions around IPOs (initial public offers). Traders with access to reliable alternative data can start trading right from Day 1.

 

Keep an Eye on Innovations

Data on new product launches work in a similar way. For example, patent and copyright registrations can help predict upcoming announcements. Increased testing activity and board meetings can also help identify an imminent launch. With reliable alternative data, traders can prepare their traders to make the most of the volatility around the event even as the rest of the market digests the news.

 

Leverage Geopolitical News

Any disruptions in the supply chain may cause a spike in future commodity prices, exert pressure on the share price of certain companies and indices, and impact market sentiment. For instance, the disruption in oil supply caused by the Russia-Ukraine conflict caused crude prices to rise. It also adversely impacted market sentiment but supported energy stocks. Data such as halted cargo movement may help traders predict price fluctuations early.

 

Predict Market Sentiment

A great way to make the most of bear runs is the ability to predict them. News articles, analyst views, trader sentiment, and updates in online discussion groups can provide deep insights into the direction in which the market is headed. Traders can predict whether the decline will continue, or a reversal is imminent. For instance, predicting macro events like a spike in inflation can help traders finetune their trading strategy.

 

Choose the Right Partner

Augment your trading platform with the tools provided by a technology partner to deliver timely and actionable insights for traders. Acuity is a market leader that offers plug-and-play tools like AssetIQ to share more trading insights with traders. It can be easily customised and integrated into your existing environment to deliver simple-to-understand data. It combines traditional and alternative data to help you engage traders and promote trading activity on your platform.

 

Request a demo now to learn how the intelligent use of technology can help your brokerage improve client engagement, retention, and acquisition.

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