Computers that trade on business news

Graham Bowley of The New York Times writes Wednesday about how Wall Street is now using computers to automatically trade on news affecting stocks.

Bowley writes, “The development goes far beyond standard digital fare like most-read and e-mailed lists. In some cases, the computers are actually parsing writers’ words, sentence structure, even the odd emoticon. A wink and a smile — ;) — for instance, just might mean things are looking up for the markets. Then, often without human intervention, the programs are interpreting that news and trading on it.

“Given the volatility in the markets and concern that computerized trading exaggerates the ups and downs, the notion that Wall Street is engineering news-bots might sound like an investor’s nightmare.

“But the development, years in the making, is part of the technological revolution that is reshaping Wall Street. In a business where information is the most valuable commodity, traders with the smartest, fastest computers can outfox and outmaneuver rivals.

“‘It is an arms race,’ said Roger Ehrenberg, managing partner at IA Ventures, an investment firm specializing in young companies, speaking of some of the new technologies that help traders identify events first and interpret them.”

Read more here.