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Computers to replace Traders

  • Post #1
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  • First Post: Oct 5, 2006 6:39pm Oct 5, 2006 6:39pm
Computers will someday replace Traders because more banks are moving towards all-electronic algorithmic trading. The number of traders employed in London will have fallen by a massive 90% by 2015 :

http://www.finextra.com/fullstory.asp?id=15955
Intersting article, thanks for sharing.

As good as automated systems can get, they'll never be as flexible as a human mind. If trading was only about shooting fast and straight, then it'd be a perfect science and markets should be functioning efficiently.

It'll be very curious to see how all these algorithms and automated systems will perform on NFP Fridays.

I smell another tech bubble here, and if I were a CEO of a financial firm I'd be more worried about training good minds into traders rather than hiring computer programmers in the attempt of automazing everything.

However, it should create better opportunities for human traders as I am 100% sure automated systems will show their downsides.
Quoting richx7
Computers will someday replace Traders because more banks are moving towards all-electronic algorithmic trading. The number of traders employed in London will have fallen by a massive 90% by 2015 :

http://www.finextra.com/fullstory.asp?id=15955
On a positive note, Forex Factory membership triples in the next 10 years
  • Post #4
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  • Edited 6:16pm Jan 11, 2007 5:59pm | Edited 6:16pm
Here's the problem that most people dont realize and computer advocates dont want to talk about. Computers are much quicker in serial tasks than humans but fail miserably to tasks that require parallel calculations such as pattern recognition and military strategy. Take for example chess. A computer can beat a grandmaster if it can crunch all possible moves. Some grandmasters strategize using "best moves" while other grandmasters see moves 4-20 moves into the future using "intuition". Whereas the grandmaster relies on "intuition" can compete with the best of them. The problem with the computer strategy is that it is best in calculating the best "next move". If your chess strategy consist of calculating the next 1-2 moves ahead the computer will beat the best in the world. However, grandmasters who plot their moves 4-20 moves into the future will have a great advantage over the computer b/c this is where the computer slows down to a trickle. multiple possible moves into the future require parallel processing which our brains are more capable of than computers. The reason for this is not the hardware but the logic of computer language. Its sequential and thats why it really thinks 1 step at a time. Artificial intelligence is very advanced mathematically but its still doesnt think any different than the if then logic of a snail's brain. It just processes more "if thens" than a snail can. Maybe in the distant future will computers beat humans in complex task but not any time soon. I just know that the markets are very very complex and the best of us trade based on multiple future possibilities. This is why computers are still very primitive when trying to imitate humans in vision recognition and language. As long as traders can exploit the future we will continue to have our niche in the financial markets. Dont get me wrong. Computers compute much faster and perform instructions much better than humans. Also robust systems can beat many traders. I am just saying traders have a niche and that is the use of discretion and the ability of some of us to contemplate multiple future possibilities. Computers have already replaced humans in computational strategies but the subjective strategies are the ones traders will continue to have an advantage in. If anyone wants to look into this more research chess and computers or even advancements in artificial intelligence.
Let it be, I trade FX because I LIKE to trade, it's like a hobby, like challenge, and there is no way I could ever let some computer earn (or should I say lose?) me money.
Quoting Dexis
Let it be, I trade FX because I LIKE to trade, it's like a hobby, like challenge, and there is no way I could ever let some computer earn (or should I say lose?) me money.
I'm more worried about mass algorithm trading by the big boys ruining the tradable patterns.
Bundy's status today: "Waiting..."
Don't big stock funds do program trading already?
This sounds like everything we've heard about for so many years regarding so many things, and I was a computer person.
If all the banks go completely automated, then no one is working for them. If no one is working for them, no one is getting a paycheck. So on and so forth. Since when does it take as many people to troubleshoot a computer than it did to run the desk?

Besides, all these people who trade the market, trade forex, hedge funds are going to be automated? You can get me a program that makes money for me if you want. But there's a lot of people coming here for money outside of the banks.
Hopefully their program trading will make it more predictable. Maybe they can publish what they're doing too to help me out.
Quoting ItalianSharp
Intersting article, thanks for sharing.

As good as automated systems can get, they'll never be as flexible as a human mind. If trading was only about shooting fast and straight, then it'd be a perfect science and markets should be functioning efficiently.

It'll be very curious to see how all these algorithms and automated systems will perform on NFP Fridays.
I think markets will behave more wildly when automated trding becomes a perfect science. Personally I think there is already a lot of automated trading going on and it is proving a success. I wouldn't count on this trend reversing and going the way of the solo human trader. Human traders will need to use these algorithms to their benefit.

I also think automated systems would perform great on NFP. A computer calculating per tick using an algorithm backtested with past NFP data going back years. Those fast moving conditions are tough for humans to assess. For the computer, each tich might as well be an hour to ponder and calculate
Even Kasparov won to the "unbeatable Deep Blue"... why?... Because humanity has the gift of creativity... computers do not.

Even though they will use algorithms... guess who is going to create those?

iiivb
its not that all traders will be gone, its just computers will do the 'heavy labor' and spot very short term arb opportunities. humans will inform the process on the big picture items for some time to come... but i do wonder when the first FF member will spot an algorithm trade pattern and post a system to take advantage?

Indeed the need for speed is now so great, that
many are talking about latency arbitrage.

However, in areas like proprietary trading where taking a
strategic risk position as well as a tactical trading position
is essential in order to beat the market, algorithmic
systems have a smaller role to play.
The more we move forward the more flexible computers programs will be. The big players like banks are capable to incorporate Aritificial Intelligence applications along with massive analysis of past data. Don't forget that they can pay for supe computers that analyze the market in a fraction of second. They also hire intelligent analysts and IT staff to make sure the strategies are set up and excecuted properly.

The algorithm trading does not eliminate the role of human being. It just changes the way people are used in financial markets.

This is the way I see it.
Quoting iiivb
Even Kasparov won to the "unbeatable Deep Blue"... why?... Because humanity has the gift of creativity... computers do not.

Even though they will use algorithms... guess who is going to create those?

iiivb
I don't think it has anything to do with creativity. It has to do with the time it would take to train a computer. I have no doubt even with todays technology that there could be a computer in the form of a neural net that could beat any human chess master. The problem is it would take so long to train that neural net. The human brain isn't that special, you have a neural net in your skull and you can have one in a computer case as well.
I think nature can only be imitated... not duplicated... and that means that "the whole is bigger than the sum of each of its parts"... if you know what I mean...



Quoting Keys
I don't think it has anything to do with creativity. It has to do with the time it would take to train a computer. I have no doubt even with todays technology that there could be a computer in the form of a neural net that could beat any human chess master. The problem is it would take so long to train that neural net. The human brain isn't that special, you have a neural net in your skull and you can have one in a computer case as well.
there are forces on the market that don't even exist lol

nature could subjugated, manipulated in our minds... mehbe, hehe

who or what is the most powerful trading force in the universe?

Quoting iiivb
I think nature can only be imitated... not duplicated... and that means that "the whole is bigger than the sum of each of its parts"... if you know what I mean...
Quoting iiivb
I think nature can only be imitated... not duplicated... and that means that "the whole is bigger than the sum of each of its parts"... if you know what I mean...
Well, can nature duplicate what is found in nature? Are humans part of nature? Anyway, I think you are getting into a spiritual arguement, and if that's what you beleive then I probably can't convince you.

As for the example of chess, there is a finite number of outcomes. It may be in the trillions or more, but it is finite. Therefore a computer will be able to play the "perfect game" sooner than a human. It could probably be done today but you'd have to run through 10^xxxx possibilities, then optimize then repeat over and over. You might be a very old man when it's done.
In any market someone's gotta be on the losing side. So if all the big players start using an automated system the market will simply adapt to it and the systems will fail. Then they will need to be reprogrammed. Those 90% of the traders that will fired by 2015 will simply come back as programmers to program new systems for the bank.
In the currency markets the vast majority of liquidity isn't created by speculators but by businesses and individuals who actually need to exchange currency for commercial reasons. So there is no reason why every speculator and certainly every investment bank speculator shouldn't be profitable. Obviously it's never going to happen that all speculators make profit but it is theoretically possible.
Quoting november15th
its not that all traders will be gone, its just computers will do the 'heavy labor' and spot very short term arb opportunities. humans will inform the process on the big picture items for some time to come... but i do wonder when the first FF member will spot an algorithm trade pattern and post a system to take advantage?

Indeed the need for speed is now so great, that
many are talking about latency arbitrage.

However, in areas like proprietary trading where taking a
strategic risk position as well as a tactical trading position
is essential in order to beat the market, algorithmic
systems have a smaller role to play.
You got a point. It won't take long for someone to reverse engineer that thing. It'll bring more people and other types into the market to try to "hack" the system.
Plus, the computer isn't programming itself, unless they finally perfect the system that responds to it's environment and learns by 2015, which is a possibility.
I think computers are limited in their capacity because of the fact that we humans developed and built them. They have our limitations.

Oh and also the fact that LTCM, Amaranth and others probably used some very powerful computer programs to go bust to the tune of billions of dollars.

The big boys computers right now can handle simple index arbitrage, order matching and keeping a orderly market by scalp trading. I am sure there are other areas most of us are unaware, but there should always be a need for the small independent traders.
You may want to have your head examined! LOL

[quote=Dexis] l there is no way I could ever let some computer earn me money.
Trade what you see - Not what you think
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