Why you can be a more informed investor once you know how to use market data

By Brandon Tepper

Retail investors are increasingly able to get what they need to make better financial decisions

Financial markets are paying close attention to political elections in the U.S. and worldwide this year. Volatility and economic uncertainty tend to rise during elections, and as history has shown, the markets will react to the results. Add to this the continued uncertainty around the direction of U.S. interest rates.

With so many economic indicators to watch, and information coming from all sides, it's challenging for retail investors to cut through the noise to make informed decisions. In an era of information overload and regardless of what is trending, one approach will never go out of style - studying data and using the analysis productively.

Data plays a pivotal role in all types of investing. It's been the "special sauce" used by institutional investors, such as hedge funds, investment banks and asset managers, to generate alpha and identify trading opportunities. Since the COVID-19 pandemic, retail investors have had more time to spend in digital forums with greater access to content, specifically financial information. Coupled with the rise of zero-commission trading, and retail investing has proliferated. Since 2019, daily retail trading has doubled.

As retail investors become savvier, they're using data to ask more insightful questions.

We know that data helps determine how retail investors approach investment strategies, including researching stocks they plan to invest in, prioritizing long-term investment goals and getting an edge on timely information that can make a material difference. Access to this information is critical and many retail investors tap into public information sources and a variety of brokerage platforms.

Technology has helped bring this information to consumers. The way we use our mobile phones to stay up to date on the news and pop culture trends - we can use similar technology to stay in tune with changes in market data to make informed investing decisions.

Navigating complex markets comes down to the types of questions individual investors can ask and how they can access data through information portals to answer those questions. As retail investors become savvier, they're asking more insightful questions. Different types of data can yield different insights, for example:

Real-time market data: The curation of trillions of individual data points about the buy and sell orders communicated on stock-trading platforms by market participants. It allows investors and traders to make decisions based on the most current market conditions. Real-time market data can also provide a competitive edge in responding more quickly to market events and is especially helpful in understanding significant economic indicators, corporate earnings reports, and other events that can impact financial markets.

Alternative data is becoming table stakes: For professional investors, alternative data is the information produced as a result of business operations - be it related to logistics, insurance, healthcare, telecommunications, geolocation, human resources or other germane topics. Today, data such as sentiment data and satellite data have become almost as common as stock price history and fundamentals. Through retail brokerage platforms, individual investors will gain access to this information to make more informed decisions.

Investors are interested in options: Not only are individual investors looking for optionality in the data they consume, they're also interested in fundamental options data to inform trading decisions. Since 2019, options trading has increased 80%. Retail investors can tap into a smart options solution that increases accessibility to the data using a fraction of the bandwidth of the Options Pricing Reporting Authority (OPRA). Retail investors are also interested in options data to better understand stock trading and whether companies may be bullish or bearish at a future date.

Tapping into new asset classes: Entering new asset classes can provide individual investors diversification in their portfolio to navigate the ever-changing markets. Using data to understand the composition of products such as exchange-traded funds can help investors gain access to a basket of securities traded on exchanges with exposure to a variety of asset classes.

Investors are always searching for their next successful investment. A mix of longstanding and innovative datasets help give their portfolios an advantage. By incorporating different types of data, retail investors can better assess their investments' potential over the long haul, adapt to changing market conditions and increase their potential for financial success.

Brandon Tepper is senior vice president and global head of data at Nasdaq.

More: The economy could be heading toward 1970s-style stagflation. What it means for the stock market.

Also read: How a niche fund became the biggest active ETF

-Brandon Tepper

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05-18-24 1022ET

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