In a turn of events unanticipated by most analysts, young people — Gen Zers and Millennials, in particular — are outpacing older generations in 401(k) contributions. Furthermore, young people are investing earlier than ever, with 31% of Millennials having started investing before turning 21.
But with growing investment opportunities for young generations and their unprecedented popularity — think of the rise and fall of NFTs — it’s becoming more important than ever for everyone to make high-quality decisions based on real-life data.
That’s where big data comes in. With the use of big data tools, investing can become safer, more profitable, and less time-consuming. And most importantly, it can become accessible to a larger number of people, which is inevitably advantageous for their financial situations as well as the overall health of the stock market.
So, if you’re interested in the role of big data in investing, here are the top uses for large data sets that were impossible to obtain for most people, even just a couple of decades ago.
Algorithmic Trading
One of the most prevalent uses of big data in investing is utilizing the power of automation to create computer programs that complete financial trades without human interference.
There are, of course, multiple benefits of employing such algorithms.
For one, algorithmic trading can make the best possible use of large quantities of data, ensuring better investing decisions with a lower risk rate.
Secondly, it’s also important to note that such programs can compute varied sources of data — from real-time news to social media to stock information to consumer behavior. This ensures better trading decisions without the influence of human emotion and bias.
Third, algorithmic trading makes it super-easy for investments to build diverse portfolios — especially for long-term investments — while also allowing them to use the power of data to make short-term financial gains.
And finally, algorithmic trading can happen instantaneously thanks to how easy it is to set buy/sell rules. This results in much faster trades than those performed by humans, automatically resulting in better outcomes and higher earnings.
Of course, algorithmic trading isn’t available to all investors. Only big trading companies typically have the necessary funds to develop these solutions. But there are some tools and software solutions available to a large number of people. So, those willing to experiment with big data have a great starting point for using it in their investing journeys.
Risk Management and Fraud Detection
Another tremendous benefit of incorporating the use of big data in investing is its potential for making financial trades safer.
This doesn’t just happen due to big data analytics, which can assess risks and predict potential problems. Having access to data-powered analytical solutions allows the detection of atypical irregular financial patterns, helping prevent potential scams and fraud.
It’s also worth noting that big data can be valuable in helping investors prevent making emotion-based decisions influenced by news stories. For instance, some traders rely on data extracted from satellite imagery to make their investing decisions. This has proven in the past to be a far more advantageous way of choosing when to buy or sell than reacting to world events or waiting for publicly traded companies to release earning data every quarter.
Of course, none of this means that data can’t still be misused. There are plenty of accounts of fake stories and misinformation being used to affect market sentiment or even the price of stocks. Nonetheless, a rational approach to the implementation of big data in investing is more likely to benefit investors than not, making it a great tool despite its potential shortcomings.
Making Investing More Accessible to a Large Number of People
We’ve already mentioned that a lot of young people are starting to invest — with cryptocurrency being the most common gateway to financial trades.
However, in addition to this being one of the consequences of the wide availability of finance-oriented content — like the popularity of the FinTok genre on social media — this development is also because most people with an internet connection now have access to a varied number of big data-powered tools that can help jumpstart their investing journeys with high-quality information.
For instance, tools like the compounding interest calculator from MarketBeat make it super-easy for people to realize the potential of growing their wealth through investing. And while there is much more to being successful in financial trading endeavors than compounding, calculators like this one are an excellent way for investors to begin their journeys toward making their money (and data) work for them.
Identifying Novel Investment Opportunities
Another excellent way big data can be used in investing is that combing through large sets of information allows investors to discover and analyze emerging trends, allowing them to enter novel market segments at the most opportune moment.
Using big data, particularly for market research, offers unique value. It provides finance experts with highly efficient and time-saving tools that can handle vast amounts of information and identify patterns and trends. Moreover, those using such programs can run predictions employing AI or ML models and consumer behavior data and aid their recognition of potential investing opportunities.
Moreover, it’s essential to note that the use of big data is not only an excellent opportunity for regular investors. It can also be a superb way for entrepreneurs to make business decisions — particularly when conducting market research, getting to know their target audience, coming up with a marketing strategy, or simply when looking for novel product-development opportunities that can allow them to stay a step ahead of their competition.
Final Thoughts
The use of big data in investing is becoming more prevalent than ever. And not just with large organizations. Much more impressively, individual traders are getting opportunities to access large sets of information and to use a variety of tools to make sense of such data.
Of course, it’s also true that the role of big data in investing is still in its development phase — especially when it comes to data governance. Nonetheless, its potential is undeniable. Any investor looking to leverage the power of information to drive their decision-making process now has a prime opportunity to make better judgments and minimize risk.
