Do you think someday the human element of trading will be obsolete? Computers seem to be creeping up as "traders"
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When they do, we'll have bigger problems. Trading is based on what people need/want. Programming makes things easier. When the time comes that computer programs can anticipate need/want then traders will be replaced. I doubt this will ever happen, models don't take into account human behavior. If a model could predict wars, uprisings, crop failures, "acts of God" and the like, then there is a good chance traders will go the way of the Dodo.
The number of traders will decrease and they'll become more and more technologically competent (programming). My guess is the traders of the future will have an excellent grasp of programming coupled with an understanding of people and world events. The traders that fit the future enviroment are going to make tons of money.
The market moves up and down, driven by human behviour, humans are ruled by their feelings. No computer system can simulate human behaviour in all its particulars.
This might be wishful thinking but I couldn't agree more. Most of those tech prop firms primarily focus on market making rather than taking directional bets. Plus, if an excessive amount of capital is utilized to chase the same fills using similar quantitative methods, it would only make sense to use alternate methods to trade.
What if they are ALL machines? I mean, machines don't need to understand humans, they only need to understand machines. So if we can put, say 80% of the volume to machines, then...
Id say that it is extremely likely that trading will become sufficiently technologically based that the majority of traders will not be relevant. Gone the way of farmers. Id say that within some arbitrarily picked amount of years (5-10?), most trading will be done by a couple of firms that have the money to put down to put together systems like IBM's Watson. That beast of a system is being worked in to clinical medical research now, but Im pretty sure it will displace a bunch of business analysts and traders.
I was talking to an MD in the algo group at a BB recently and asked him the same question (specifically about flow trading though). He disagreed that algo trading will completely take over as most clients would rather give an actual person a trade and have them work their order and know what's going on in the market, but it comes down to costs. There will always be a strong demand for algo-based trading because it's cheaper, but it likely won't eliminate human traders entirely.
All that only applies to flow trading though.
Thats the point
Never even thought of this...good point
I'd like to know what most people think algo trading actually is. Obviously to have an opinion on whether or not algo trading will take over you need to understand the mechanics of how it works. I think very, very few people understand this.
I feel like I've barely scratched the surface and I have taken multiple econometrics classes and have close friends working at top algo shops.
AI has come along way. Some behavior isn't that hard to model. There are a lot of tech people working hard to create realistic AI.
Here's my take:
I understand that most CTAs use a trend-following approach, but calling it algo trading is giving them far too much credit. Most amateurs just need to know how to place orders on x-day break-outs or 2-ema crossovers (both are optimized for the instrument traded), coupled with proper money management exit and re-entry rules in order to mirror the results of the CTA index.
You do realize that it's humans who design these algorithms? The "computer" will only do as much as what we ask them to do, so no, it is not possible to take out the human element in markets.
That is unless we create something that can "think" on its own, but that's not happening anytime soon nor is this the right place to ask.
It's not that traders will disappear; they'll just be a different breed. Non-quant strategies will become quant. Traders will adapt the tools they have to areas that previously were considered non-quant. The decisions will need to be made intellectually, but then the execution will be quant. Even when you look at non-quant, world event trading and what not, you can use computers to sort the data is coming out and eventually make any situation quite quant based.
For instance, tracking CPI and industrial production in countries leads to a decision point based on what's happening. You develop a program to continually track this and place orders based on your predefined criteria. Yeah trader thought of the idea first, but instead of continually having to monitor, the computer does it. The trader's main responsibility will be making sure the expectations in the program don't change and if they do updating it.
Is there any market where computers won't significantly marginalize the role of current traders? Maybe drugs, there’s no actual defined markets; and most drug lord aren’t huge on data.
We have had computer programs that automatically trade off of data releases (like CPI and IP) in the markets since at least the early 2000s...this is not some space-aged innovation of the future. Sometimes they are great, and sometimes they fukk up massively because they buy and sell based on quantitative inputs when a qualitative read of the data release often shows it to be way stronger or weaker then the headline implies. I trade around data releases all the time and often find the algos to be the source of easy fading opportunities when they misread numbers. I would put this in the category of a technology that can be easily "beaten" by a human being with qualitative judgement and the work ethic to do the reading to actually understand the economic data.
rewind a decade and we could have had the same thread. In the meantime discretionary traders made more money that at any time in human history. I am quite certain that if we had WSO back in the early 1900s people would have been saying that the telephone was going to end trading as we know it...
It doesn't matter how powerful the computer is, it still needs to be programed and constantly updated. A model that works today wont work tomorrow because things change.
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