Future Now
The IFTF Blog
The Visible World in High Finance
I talked a lot in my presentation last week about how the Visible World can be seen in the financial sector, which is awash in data.
Technology Review has an excellent 2-part piece that started today on the topic:
In what's called nondiscretionary trading, computers both find the inefficiencies and execute the trades. The Aite Group, a financial-services research firm, estimates that roughly 38 percent of all equities may be traded automatically, a number it expects to increase to 53 percent in three years.
Computers also underlie another developing frontier, high-frequency trading, which is a fantastically exaggerated form of day trading. The computer looks for patterns and inefficiencies over minutes or seconds rather than hours or days. An algorithm, for instance, might look for patterns in trading while the Japanese are at lunch, or in the moments before an important announcement. There is a massive amount of such data to crunch. Olsen Financial Technologies, a Zürich-based firm that offers data for sale, says it collects as many as a million price updates per day.
Interestingly, the story also gives a nod to the Science in the Workplace perspective, describing how both physical and biological/evolutionary algorithms are used:
One trader I spoke with at a $10 billion hedge fund based in New York said that his computer executed 1,000 to 1,500 trades daily (although he noted that they were not what he called "intra-day" trades). His inch-thick employment contract precluded my using his name, but he did talk a little bit about his approach. "Our system has a touch of genetic theory and a touch of physics," he said. By genetic theory, he meant that his computer generates algorithms randomly, in the same way that genes randomly mutate. He then tests the algorithms against historical data to see if they work. He loves the challenge of cracking the behavior of something as complex as a market; as he put it, "It's like I'm trying to compute the universe." Like most quants, the trader professed disdain for the "sixth sense" of the traditional trader, as well as for old-fashioned analysts who spent time interviewing executives and evaluating a company's "story."
For those who requested copies of my presentation - for now, at 6.6 Gb it's too large to post online. We are looking at ways of delivering it to you.