Ahead of the tape

From The Economist print edition

INVENTORS of trading algorithms—computer programs that generate buy and sell orders and make lightning-quick trades—have picked up a bit of timeless wisdom from the stock operators of old. “The best of all tipsters,” Edwin Lefèvre wrote in a 1923 fictional account of the markets, “is the tape.”

As the time taken to process computer-generated trades falls to thousandths of a second, algorithms are being created to react to news headlines faster than the eye can scan them. Dow Jones and Reuters, the news providers, now offer electronically “tagged” news products that algorithms pick up to make programmed trading decisions. (Dow Jones claims the business is so secretive that it cannot divulge details of customers.) ….. According to TowerGroup, a research firm, $480m is likely to be spent in America this year on developing technology for algorithmic trading. read on.