It has been a bit over a year when I was working on the trading floor in the Investment Banking division of a bank right in the heart of London. You can picture it like it is seen in movies: sales and traders running around screaming numbers and cheering over the whole floor for high trades they closed and big amounts of money they shifted between different financial parties. A glance into the future will show the dramatic shift of that picture and promises empty rows on the trading floor and nothing of the kind described anymore.
One example my former boss introduced me to when I just started was that in 2016 already 99.7% of Forex (foreign exchange) trading was completed by algorithms without human beings interfering anymore. To be completely honest, FX trading is one of the easiest financial products to write an algorithm for. However, more and more highly sophisticated future trading transactions placed by human beings will be substituted by code as well. Therefore, welcome to algotrading.
Algotrading is the practice of placing buying and selling orders into different models, which then trigger an order based on a set of predefined objectives of the algorithm behind that model. One of the most common methods in algotrading is High Frequency Trading (HFT). In HFT a supercomputer receives electronic information and initiates an order, before human traders can even start processing the information. Methods such as the above mentioned would be the main reason why future trading floors will be almost empty. The only exception would be traders working on highly sophisticated financial products, which involve human interaction with customers.
A look in the wide future shows us barely any interaction in trading between human beings anymore. The algorithms and code lines written by well-skilled coders will have almost all of the control over the worldwide financial market. But what happens if our economy is hit by an economic shock like we experienced in the financial crisis in 2007? Will the implications be even more disastrous when hardly any human interaction is involved anymore? Is there a way to align the concept of algotrading and HFT with sustainable, risk preventing finance? In my opinion, a lot still needs to be taken into consideration. If not, save your cash at home, because the next money crisis will be coming…
GSTAR.AI. (2018, May 27). The impact of algorithmic trading on the financial markets. Medium.
DebD. (2010, August 25). Algorithmic Trading – Taking the Human out of the Equation. Dazeinfo.
