FutureWhat Is The Future Of Trading?


  • The impact technology has on trading is enormous. Today it is estimated that 70% of investment decisions are taken by automated systems and the percentage is going to rise.

    Up to year two thousand investment decisions, even short-term were taken by observing and evaluating the real value of the asset. The sudden increase in computing power, changes the process of choosing investments.

     

    • How is it changing?

    Today, most hedge funds have investment selection models that are proprietary to the owners. These models which are written in programming languages, allows the traders quickly identify best trading opportunities.
    Just think about it for a minute, a team made up of few people can monitor the entire global market today. This has been recently considered an impossible feat.

    So what is a model? A “model” is a mathematical equation that simulates real dynamics. Through these models, decisions are taken considering the factors of risk-reward ratio. Simply put, they select the best opportunities in terms of performance maintaining a low risk profile. This type of selection is calculated in a very short period of time. With high frequency trading we are talking about thousand fraction of a second.

    The main objective of this style of trading is no longer the real value or fundamentals of the individual asset, but decisions are rather a result of analysis and statistical-mathematical estimates.

     

    • High frequency trading

    Before we talk about the investment rate of “high frequency trading” (HFT), we must say that this type of trading is the new leading form of trading. HFT algorithms are written in programming languages allowing financial robots to enter and leave the market very fast, taking advantage of every minimum price fluctuation.
    It is estimated that an HFT root can perform up to 100 operations per minute on a single asset.

     

    • What will the future hold for us?

    A trend emerging in every industry is the development of artificial intelligence.
    AI systems are able not only to replicate programmed actions, but also to learn from the outcome of their behavior.
    This type of technology applied to financial markets is disruptive. Imagine the possibilities of a trading system capable of automatically learning from its stop losses?
    Although for many people it may look like pure science fiction, this technology is already at an experimental stage in some fields.

    The company at the forefront of AI creation is Deepmind, acquired by the Google for about 500 million euros. This former startup has built an AI system which was able to figure out how to play Atari video games without being preprogrammed.
    Recently in an ancient Chinese game called Go, the champion was beaten just by a Deepmind algorithm called AlphaGo. The algorithm after losing one of the games realized an impressive series of victories.  This confirms that the system has learned from its mistakes without any external intervention and it's easy to assume that in the short term this technology will be applied to trading systems.

Interviews

  • the Analyst's answer

    Jean Grossett - Financial analyst

    A sound knowledge in programming or data science gives a trader wings. Starting with simpler tools like excel and python dataframes, can serve as an eye opener into the field of machine learning and AI. However, if a trader is not good at any of these, he or she can employ the services of an expert either on Upwork, freelancer, or fiverr.

    Also taking up challenges on Kaggle will go a long way in making you a better data scientist and consequently a better robot/EA developer.

    Finally, a study and understanding of a subsection in the field of Data science called feature engineering is an area most traders can find more success in strategy development.

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