What Future??

This week I read a newspaper article that was both interesting yet very concerning about the development of computer generated trades in futures markets.

Apparently the top 3 traders in the Euribor aren't even human!Did anyone know that 20% of the volume in the Euribor comes from orders decided and executed by a computer?Algorithmic trading also accounts for 15-20% of turnover on Eurex.

If the case was a computer just deciding to execute a trade then I think we could al live together but has anyone else noticed the aggressive way in which the machines operate and the HUGE bids and offers that pop in and out of the market every few seconds,in Euribor and Short Sterling a 20,000 lot offer is now no big deal,of course who can remember the last time someone actually traded a 20,000 lot?

The "computerised scalper" bids and offers in such ridiculous size because it knows it will do the majority of any market orders leaving you and me with a few crumbs here and there.Remember,the computer never needs a day off,is relentless and fearless and won't lose confidence following a rough day,is not aware of the financial implications of it's trades and is being funded by very deep pockets.

If anyone cares to check I posted 18 months ago on a different thread 'Short Sterling Recently' in the Money Markets Section saying I'd noticed 5,000 lot bids and offers in Short Sterling which were manipulating the market - the computer is obviously making so much money it can now afford to do the same strategy in 20,000 lot clips - where's it going to end?Probably bids and offers of 100,000 lots+ until all the smaller traders are off doing something else altogether.Either that or everyone bids and offers for 10 times the size they actually want risking getting picked up on the whole lot or in a few years the best local is the one with the most modern computer programme and traders inputting orders manually are like dinosaurs.

With this information it begs an important question......is there any future in futures?

Good questions.

It would seem the "computerised scalper" does not hit bids or offers,but IS the bid and offer therefore that is their edge.Market going up - go bid for 20,000 ,comes back - out of the bid -go offered in 20,000 - surprising how a few years ago the daily volumes weren't that much different to todays - the only increase is the size of the bids and offers - the reason why?if you offer 20,000 with no intention of completing the order you'll hopefully do a fraction that other market participants don't do and force them out.

Is this where the markets will eventually meltdown? - all the computer programmes want to do the same trade,like you say without the introduction of 'dumb money' there's no-one to be the other side, and eventually the markets are 100,000 lots bid and offered two ticks wide because the model is saying ,for example, buy at 24 sell at 26, hoping to soak up the few market orders and primarily by bidding in such size will make it impossible for others to compete.

I hope people realise the seriousness of this situation - if the top 3 traders in the Euribor are computer programmes already then what chance do newcomers really stand?

Anyone remember Garry Kasparov in 1997 the undisputed world's best chess player being beaten by a computer,a computer that was taught to evaluate all the different scenarios and possible outcomes before actually making a move - and now it seems we have the same monster in our markets and what are the Exchanges doing about it?Apparently not a lot - volumes are steady so where's the problem?One local quits,another one starts - big deal!