Scanning news for automatic trading

SCOTT JAGOW: Reuters not only provides the news, it also sells financial information to big financial institutions. Today it's launching a software program that aims to help investors use that news to their greatest advantage. Ashley Milne-Tyte reports.


ASHLEY MILNE-TYTE: In the old days, famous financiers the Rothschilds used carrier pigeons to bring them the latest news so they could act fast and make a buck. But these days, news is everywhere, and it's coming fast and furiously. And Richard Brown of Reuters says what becomes important for investors is measuring quality...

RICHARD BROWN:To determine the overall flavor that the company is receiving in the press. The solution which we're developing is actually taking that process and automating it.

The new Reuters software will scan articles for positive and negative words about a company. A computer then can trigger trades based on that information. But James Angel of Georgetown University says there is room for error.

JAMES ANGEL:What happens if too many people use the same software and a bit of news comes out, and 5,000 computers generate the same sell signal at the same time?

That, he says, would create market volatility. Even so, he says, systems like this are part of the natural evolution of trading technology, and they're likely to become more popular. I'm Ashley Milne-Tyte for Marketplace.

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