acronym, I think humans will always be ahead because of the intuitive faculty that cannot be programmed. Reaction times will definately speed up - if you have a 2 minute window of opportunity to get into a swing trade these days - in future it may be a matter of seconds. Forget about scalping against the robots as the reaction times will be very hard to compete against. Computers have no feelings and if 90% of the volume is being done by machines - humans will have to "think" like a machine rather than the other way around. To me it means staying on the cutting edge as a trader in the coming years and making money now while the going is relatively easier.
Most stuff in the IBM report have been said before. While it is true that a high % of tradition "upstairs" traders will probably lose their jobs, this will not make the City an empty place filled with data centers, however. Automated trading require quants, developers, and traders, so while there will be decline in trading desks (look at what happened at Goldman with their equity trading, they fired around 60-70% of their cash equity trader a couple o fyears ago), there is a huge demand for traders who can play a role in automated trading. It is just nature of evolution. In 60-70-early-80s, floor trading dominated, a new grad would get a job as a clerk for a floor trader, do grunt work like checking trade tickets, trade confirms, etc, get garbage time when the boss is tire / drunk, eventually become a trader him/her self. A good chunk of exchanges like CBOT, or NYMEX still operated this way even only a few years ago. In late 80s - now, upstairs electronic (but human decision making) mostly dominated, a new grad would get a job as an assistant on a trading desk, do grunt work like checking trade blotters, get exposure to covering a minor instrument or two when the boss are too busy, eventually get allocated a small book for him/her. Most of the trading desks 60-70% operate this way. In this environment, floor traders are reduced to mere "order fillers", and to get a read on the floor, but their role is largely diminished. In the automated trading dominated world, a new grad would get a job as an assistant to an automated trading operation, do grunt work like monitoring the system, system tuning and some minor algorithm optimization, maybe get a chance to implement a small algor, eventually get allocated a small book to trade with. In this world, the role of electronic traders are diminished, to become system monitors, and to bail the system out trouble when it runs into limitations, but also require a high degree of understand of the algorithms and system mechanics involved. Instead, what I am seeing is that there is a growth of "traders plus", basically traders who can do everything in the trading process, from modelling, quantitative analysis, to system development, and also trading (which is essentially monitoring the system and react as necessary).
Can't say that I enjoy observing the way humans are being replaced pursuing higher efficiency and productivity, not just in finance. Year 2090, all human skills have become obsolete. 99% of humans live on social benefits, increased due to corporate savings derived from salary cuts (no more jobs for humans) and increases in company taxation (governments always win). One great benefit is that humans do not have to work to pay their bills. But the Q is - is this the life we want to live? Maybe the world is heading for a total change of the common ways and principles, does a man need to work for living? Mad post, I know. P.S. Oh yeah, I forgot to mention a droid presidency. Chinese have nailed it with their Yin and Yan, which is common practise to humans. Leave the world to be run by machines and there will be total disbalance. I hate the thought of it. Sorry for the blah blah, I had a little drink this morning.
I remember IBM. They were the king of the 70s and 80s and made the huge call that hardware was everything and software was a bit player. Bill Gates remembers IBM quite clearly
I can see it as an issue for execution only traders or traders asked to accumulate a certain percentage of a company within a price range and also spread traders but for outright speculating even very short term it shouldn't be an issue, the market still has to move. The limitation of any software is the rules the trader tells it to use and the market trades differently every few weeks. Show me a computer that can translate the coded wordings of a central banker or an unexpected company headline and i'll be impressed. I think algorithmic trading is very good at disguising a big trading position being accumulated of disposed of and in a way will provide liquidity when the unexpected kicks off - there will always be opportunities for the flesh and blood trader. Eurex has always been full of black boxes, it's still very tradable http://business.timesonline.co.uk/article/0,,8210-2231867,00.html
It doesn't sound like individual traders have much to worry about, as always those that are employed will be made obsolete. Doesn't sound much different than automated trading. They are just reducing costs. There still will be all kinds of time frames for an independent trader to take advantage of that will not disappear. It will be interesting to see if there is much difference in the intraday and long term price behavior. I would think it would be nearly the same. It would be like numerous traders that have their trading methods programmed for auto trading.
The day robots will rule the world is the day communism will finally work. (hey it has a lot of meanings)
Chess is a terrible model for the financial markets... Because it's a game of finite possibilities and no external factors. The key thing to beat Grandmasters is raw computer power... So when computers got fast enough about 5 years ago... that was it. Poker is much more analogous to the financial markets... And computers choke on the many uncertanties and external factors (such as a player's personality). To beat Poker Pros requires a combination of a very advanced "expert system"... And a sophisticated "learning system" to adapt to the style of each individual Poker Pro. The article is complete nonsense... Because to replace a top trader... Your "algorithmic system" must trade better than the trader you replace... And "expert systems" are no where near the level of a Poker Pro or Specialist. In fact... The Artificial Intelligence field has been making crazy predictions since the 70s... And all we got today is Vaccum Bots and Insane Phone Menu Hell. What is more realistic is Bots manned by Pro Traders... Meaning sophisticated computer-assisted trading... Which will result in perhaps 50% of trading jobs disappearing. As someone profitably running ** partially automated systems **... I think the kiddies here dreaming about building 100% automated trading systems... Are either incredibly naive or out of touch with reality... and need help.
Its going to be a hybrid. Did anyone see the article on MAN's black box stuff. It spits ideas all the time and the fun was down the whole summer.