Since 1848, thousands of traders crowded into the pit at the Chicago Mercantile Exchange, buying and selling millions of dollars of contracts every day. Traders would shout thousands of order across the pits for orders (known as the "open outcry method"), shoving each other to remain in place, and using rapid-fire hand symbols (known as “arb”) to communicate across the mayhem and noise. Trading desks would stay as close to the action as possible, using the latest technology to communicate their buy and sell orders originating in their offices for execution on the trading floors. The trade relied heavily on experience, and the ability to anticipate the movement of the markets. Being able to listen to the roar of the crowds, and correctly interpret the mood of the pit were a killer advantage.
Disruptor 1 - The Telegraph
Long before the computer-trading era, the daily trading activity relied on written notes known as "Tickets" to place buy and sell orders. The invention of the telegraph for use in the train and rail industry was quickly adopted by Wall Street, because it allowed trading desks to send orders to the floor instantaneously, much faster than a competitors' runner could sprint with their order ticket. This allowed a massive speed advantage for order execution, and the adopters of the technology profited big. At the end of the day long reels of telegraph paper known as the "Ticker-Tape" held a daily summary of the activities taking place.
Disruptor 2 - The telephone
The invention of the telephone made it much easier and faster to communicate with the trading floor because it removed the lag of having to type the order into the telegraph using morse code. The telephone effectively rendered the telegraph obsolete overnight. By the 1970's telephone systems had grown more complex, and party lines / conference lines allowed multiple people to be on the line at the same time, making collaboration possible between multiple offices and the trading pit floor possible for the first time.
disruptor 3 - The Squawk-Box
In the late 1970's a company called TelAid saw a technology owned by Bell Labs, called the "hoot-n-holler" system, also known as the junkyard-circuit. (Predecessor to "walkie-talkies.") TelAid realized that this innovation would allow people to connect the various trading floors and management offices to the trading floors, allowing the offices to listen in on the action happening on the trading floor. The stream of verbal activity from the trading floor with the roar of the trading pits behind it were a never-ending roar of activity into the microphones, and the desktop speaker boxes known as "Squawk-Boxes" because of the tone emitted from their cheap speakers enabled multiple trading desks to listen to multiple trading pits via traditional telephone lines for the first time. These Squawk-Boxes allowed traders to listen to the mood of the trading floors all day long, and to place their trades according to the action on the other end of the line.
Disruptor 5 - Electronic Trading
By the mid 1990's the acceleration of the computer technology ushered in a new form of computerized trading, allowing traders access to the inside spread faster than every before. Since it was so much faster and efficient to execute trades, the trading pits have since been rendered obsolete, as evidenced by the final closure of the Chicago Mercantile Exchange on July 6, 2015. This has led to a unique, specific market gap directly affecting trading desks, because now that the trading pits are closed, they can no longer listen in on the action to "feel the mood of the trading room" since the trading moved from hand-symbols and shouting, to computer terminals humming away in air conditioned server rooms. This renders trading numb in a way, forcing trading desks into a reactive, rather than proactive trading position for the first time in a century.
Disruptor 6 - psychsignal's Digital Squawk-Box (a.k.a. "SquawkrBot™")
We at PsychSignal were determined to find a new way to bring that analog feel back to the trading desks, and allow them to "feel the mood of the pit" once again. What we built is a proprietary datamining system which listens to public and private chatrooms and social media feeds, and gives traders a quantitative analysis of the mood surrounding over 10,000 individual stocks and securities. This analysis is provided to our customers' trading desks as a computerized / robotic version of the Squawk-Box, allowing trader sentiment to be used in algorithmic trading strategies. This allows the computer strategies to "feel the mood of the room" just like traders have relied on for more than 167 years.
The concept behind our technology began in 2010 as a new way to use the internet to give traders access to the public mood surrounding financial securities. The SquawkrBot uses the tone of the global conversation being had on social media to act as a computerized substitute to replace roar of the crowd in the trading pits now that computerized trading has rendered the trading pits obsolete. The technology allows a trading desk to listen to the global online conversation without violating SEC privacy rules in order to deliver an advantage over even the fastest electronic trading desks, once again delivering a critical advantage over the rest of the field.
We harness the millions of conversations and market transactions happening online all the time. Together with careful curation & filtering of message data, our innovative custom-built natural language processing engine (NLP) levers its a precision lexicon & streamlined data structure to maximize actionable signals for our clients' automated investment processes. This technology innovation allows the global online social media conversation to be used as a way to restore the human emotion connection to market trading, allowing today's modern trader to anticipate market moves, by once again "listening to the roar of the crowd."