Trump tweets drive day trading but leave math, computer whizzes sidelined

Global Brokerage

30/01/2017 18:05

By Gertrude Chavez-Dreyfuss and Anna Irrera 
    NEW YORK, Jan 30 (Reuters) - Day traders love making bets on 
tweets from U.S. President Donald Trump, but some of the most 
prominent quantitative strategists from hedge funds and banks 
are not quite ready to make big, bold trades on his social media 
musings. 
    The president's active Twitter presence has lifted 
volatility in financial markets, which is good for day traders 
who capitalize on price fluctuations in highly liquid markets. 
Such traders, who have a short-term horizon, have struggled the 
last few years as market moves have become steadier and more 
predictable amid a low interest-rate environment. 
    "Trump's tweets are a good opportunity for a short-term 
discretionary trader," said Patrik Safvenblad, a partner at the 
$1.7 billion systematic macro hedge fund Harmonic Capital 
Partners in London. But he said it is not the right strategy for 
his firm since quantitative managers need data going back at 
least five to 10 years to establish a pattern. 
    Quants track patterns or trends in trading behavior and 
asset prices and create formulas to predict future market 
movements. These are entered into powerful computers that buy 
and sell automatically based on signals generated by algorithms. 
    For these gifted bunch of mathematicians, Trump's tweets are 
way too sporadic to serve as a meaningful trading strategy.  
    "Trump's tweets are episodic," said Joseph Mezrich, head of 
equities quantitative strategies at Nomura in New York. "The way 
I look at data is that I have to look at what happens with 
sufficient sample. You have one or two events on Twitter ... and 
it doesn't provide much reliability." 
    First Quadrant, another asset manager that uses computer 
models to crunch data with about $22 billion in assets, does not 
look at Trump's tweets for investment opportunities. 
    "As a fundamental manager, we are really looking for just 
that: fundamental change," said Jeppe Ladekarl, a partner at 
First Quadrant in Pasadena, California. 
    Algorithmic trading makes up about 55 percent of U.S. equity 
trading volume, according to the latest research from Greenwich 
Associates. In the global currency market, that figure rises to 
65-70 percent, according to research from Aite group.  
    The quants' lukewarm response to Trump's tweets should 
ordinarily keep volatility under control. But given the many 
policy unknowns under the new administration, there should be 
continued price swings in the market, analysts say.   
    Richard Benson, co-head of portfolio management at currency 
management firm Millennium Global in London, thinks Trump's 
Twitter feed has created more noise than meaningful volatility.  
    Oftentimes, the noise in the data drowns out the trading 
signals, resulting in uncertain outcomes, analysts say. 
    At best, Trump's tweets can create short-term sentiment 
signals about specific companies which can be useful in the 
equity space, Benson said. "But the tweet is still subject to 
interpretation," and he is not sure it can actually predict 
anything. 
    Millennium manages about $16 billion in assets and has one 
systematic fund, which Benson said has no plan to use Trump's 
tweets. 
     
    RETAIL TRADING VOLUME SPIKE 
    It is a different story in the day trading world where 
Trump's tweets have delivered a spike in volume for some of the 
online retail brokers. 
    Robinhood, a commission-free trading app for retail 
investors, has experienced surges in volume based on Trump's 
Twitter activity, the company's spokesman said.  
    Transaction volumes on Robinhood hit record-breaking levels 
of more than $1 billion in the week following Trump's victory. 
The trading app, which has 1 million users, is backed by leading 
venture capital firms Google Ventures and Andreessen Horowitz as 
well as U.S. rapper Snoop Dogg and actor Jared Leto. 
    Volume also increased in November at FXCM Inc  FXCM.N , one 
of the leading U.S. retail currency brokers, due partly to the 
U.S. presidential election, said company spokeswoman Jaclyn 
Sales. Trump's disparaging comments on Mexico and China on 
Twitter have boosted the dollar's trading volume the last two 
months based on FXCM's real-time volume indicator. 
    At U.S. broker TD Ameritrade Holdings Corp  AMTD.O , fiscal  
first-quarter average daily trading volume rose 11 percent from 
a year earlier, the company said on its website, attributing 
part of that increase to Trump.  
    During an earnings call about the quarter ended Dec. 31, 
Ameritrade Chief Executive Officer Tim Hockey said Trump's 
social media activity could continue to drive trading volume. 
    "Every day we wake up hoping Trump will tweet something," 
Hockey told CNBC a few weeks ago. 
     
    NEW OPPORTUNITIES 
    Trump's fondness for tweeting brings business opportunities 
for technology vendors, some of whom have developed models to 
help companies profit from the U.S. president's Twitter 
comments. 
    New York-based startup Trigger, for instance, which notifies 
retail investors about social media comments, has created an 
alert called "trigger," that tips off investors when Trump 
tweets about a listed company.  
    Rachel Mayer, Trigger's chief executive, said the "Trump 
Trigger" has become by far the most popular alert on the 
platform, with subscriptions from around one-third of its total 
users. 
    "I don't see these (Trump's tweets) stopping," said Mayer. 
 
 (Editing by Megan Davies, Ed Tobin and Matthew Lewis) 
 ((gertrude.chavez@thomsonreuters.com)(+ 1 646 223-6322)(Reuters 
Messaging: rm://gertrude.chavez.reuters.com@reuters.net)) 
 
Keywords: USA TRUMP/TRADING