The Death of the Trader

Posted on Fr 13 Juli 2007 in misc • 1 min read

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    I predict that Algorithmic Trading will become more common place over the next few years. Those traders that don't understand it will probably end up working at McDonalds, those that do will have to hire eggheads super smart quantitative people to build proprietary algorithms.

    For those at the cutting edge of financial markets, the use of highly sophisticated computer programmes, known as algorithms, is far from fantastical: it has been a key driver for the success of some of the world’s largest hedge funds.

    One of the most profitable hedge funds is Renaissance Technologies. It has around $26bn under management and has yielded returns exceeding 30% for more than a decade. Clouded in secrecy, it is almost entirely staffed by scientists that use computers to make money. [via Financial Director]

    I do believe that a non-algorithmic trader could still make money, perhaps a lot of money in this brave new world. How? If all the computers analyze the markets in using Gaussian distributions and assumptions, I believe they become susceptible to a financial asteroid. If one hits, the market will probably slide like crazy as sell after sell programs kick in!