Why You Shouldn’t Use Free Alternative Data Sources
Every industry needs a steady supply of useful data, but some industries need this more than others. One of the industries with a very high demand for data is the financial industry. Investment management firms and other financial bodies need data and leverage it to make insightful decisions that will greatly affect the return on investments (ROI).
This data can be sourced from conventional financial reports, SEC filings, trading reports, and finance-related news. However, to make more robust decisions, there is the need for financial sources to combine news from conventional sources with those from non-conventional sources, also known as alternative data sources.
These alternative data sources contain information that people do not usually scrape or pay attention to. For this reason, companies who complement these sources often find out that they make the best decisions.
Alternative data sources are therefore important, but the free ones are not mostly because they are largely unsafe and more likely to expose a brand to the different levels of corporate data breaching.
Alternative Data and Its Role in Financial Analysis
Alternative data is any data collected from a non-traditional data source. Investment experts often use them to support their insight generated from conventional data sources. Globally, the amount of data generated will hit 163 Zettabyte in the next 4 years, and this data is scattered across different sources.
Alternative data sources include web searches, web demographics, credit cards, and point of sale (POS) transactions, weather and satellite imagery, geo-locations, reviews, commentaries, social media posts, and other online interactions regarding finances.
And this type of data is gaining increasing relevance in financial analysis because, aside from being profitable when complemented with other traditional data, it can also be used in formulating model-driven investing strategies. These types of strategies are often created to help understand the market and beta it every time.
What makes alternative data even more attractive is that since the advent of Covid-19 more business activities are being done online, and more companies have gone digital. This data, therefore, holds very rich insights that financial institutions can no longer ignore.
Ways of Acquiring Alternative Data
Briefly described below are some of the best ways to acquire alternative data for further analysis and application:
- From Individual Reviews and Comment
Individual posts, comments, discussions, and reviews are a very rich source for alternative data, and what people say online can be accurately used as their behavioral patterns and hence used to predict what they will do and what they will like.
Extracted this way, the data is often “unstructured” and would require different processes before it can be efficiently applied; however, this does not take away from the relevance of the data.
- Using IoT
Internet of Things (IoT) devices such as POS systems, smart TVs, and parking and traffic sensors are great tools for gathering alternative data. The sensors and endpoints of these devices can be used to collect interesting “unstructured” data that can be analyzed to provide powerful insights about people and a particular market.
- From Companies and Government Agencies
It is also possible to collect alternative information from data that businesses handle, such as credit card transactions and receipts generated after-sales. Government agencies that handle taxes can also make for a fine place to get alternative data.
Why You Should Not Use Free Sources
Getting alternative data using free solutions may seem attractive because they are free, but we will like to state that they are not truly free in the actual sense of that word- they always come with a catch.
Dome of the disadvantages of using free solutions to alternative source data include the following:
- You would be sharing the extracted data with the solution providers
- The solutions are always slow and generally unreliable
- It is easy for the providers to steal sensitive data from the sources, especially individuals
- It could easily result in a breach of your company’s internal security
Web Scraping with Proxies as an Alternative for Getting Accurate and Fresh Information
Gathering alternative data is important but not easy for several reasons. First, it can be quite tedious to check multiple sources for what you are looking for regularly.
Next, you may easily find out that not everyone is happy to allow you to collect this alternative data. And to stop you, some platforms will either set up a CAPTCHA test to stop you or outrightly ban your IP address.
Then there is the trouble of geo-blocking, especially if you reside in some forbidden location. This can make it impossible for you to gain access or collect the data you need.
Web scraping has therefore proven to be highly essential for collecting alternative data. This is because web scraping using proxies works automatically to remove the load from your shoulders. Then it rotates IPs, proxies, and locations frequently to prevent any bans or blocks.
You can also easily bypass geo-blocking with proxies because they offer you several locations and countries to choose from. Hence you can use a Brazil proxy to harvest alternative data in Brazil even if you live in another area. Brazil proxy will ensure that you bypass all geo-blocks and get access to the content you need.
Alternative data is becoming a very common way for financial institutions to gather more data from unlikely sources and complement the traditional data to make the best decisions.
And while there are several ways to get it, it is more advisable to use web scraping with proxies to scale past any challenges on the way.