The future of trading

[tomhunter]

Hey


I was reding this article and it says that trading gets and is getting harder and harder to make money as time goes on, is this true as i can't find anywhere else which mentions this: http://www.trading-naked.com/library/Prologue.pdf

Will it actually get harder and harder to earn trading and if so how does this work?

Is it true of investing (in stocks and shares) or just trading the financial markets as i can't see the defining difference as to how it would apply to one and not the other, as you are just analysing differently?

Thanks alot
Best Regards

 

[blackcab]

Haven't read the article but consider what would happen if 99% of trades were computer generated - wouldn't every price move be killed or arbed immediately? Are prices destined to flat line?

 

[tomhunter]

Hey

Are the markets traders operate in the very same markets the rest of the world does?

For example comodities, pork bellies or whatever is that the same market that supermarkets/wholesalers would buy and sell in?

Thanks

 

[charliechan]

same old, same old.

the markets are always changing through industry inovation and technology inovation. some find it hard to keep up or adapt. if you look at some of the charts from 'the old days' however, they look very similar still to those of today.

interestingly, some of the computerised trading used by funds typically use common indicators and methods etc that we are all familiar with. the only 'edge' it gives is mechanical decision making, if that is one? not all of 'em are making money either so i hear.

 

[tomhunter]

bump any more opinions?

Cheers

 

[tomhunter]

anyone?

 

[$spreader]

Markets are becoming more difficult for 2 reasons.

Firstly there are a lot more people with access to the markets therefore a lot more people with the same positions and prices can move seemingly for no other reason than it's all locals stopping themselves out forcing the market to move and once everyone has covered they can watch the price retrace to the original levels but that's no good when you're flat.

Secondly the computer generated trades that fly in and out of the market (STIRS mainly) have done a good job in forcing a lot of locals out.Let's face it,most traders in there are watching the size but can't compete with the machine bidding and offering in 20,000 lot clips but rarely completing an order.When you need to buy back 100 lots but are joined on the bid by 15,000 who isn't going to get squeezed out and if someone were to sell say 500 lots how many do you get back - I'd estimate about 5 - Great!!

Eventually the profits become less and less and the risk higher and higher - the only way to compete is bid/offer for 10 times the amount that you want - excellent when you get picked up on the whole lot and then scramble to cover.

 

[neil]

Adapt or die

 

[$spreader]

Hardly constructive advice to a serious situation - it would seem many locals are unfortunately forced to choose the latter.

According to a recent newspaper article the top 3 traders in the Euribor are computer programmes - clearly humans are finding it hard to adapt.

 

[A Dashing Blade]

Hardly constructive advice to a serious situation - it would seem many locals are unfortunately forced to choose the latter.

According to a recent newspaper article the top 3 traders in the Euribor are computer programmes - clearly humans are finding it hard to adapt.

Very constructive imo. Why trade the short end . . . . because it doesn't move and you can, effectively, market-make all day.

Now peeps are realising that computers are doing that a) a lot faster and b) without getting bored.

No offense spreader, but neil is absolutely correct, adapt or die.

Personally, what I find the most worrying about algo-trading is that humans programmed the computers (serious).

 

[theEdge]

Hardly constructive advice to a serious situation - it would seem many locals are unfortunately forced to choose the latter.

According to a recent newspaper article the top 3 traders in the Euribor are computer programmes - clearly humans are finding it hard to adapt.

Where was the story? Can I read it online?

 

[blackcab]

Personally, what I find the most worrying about algo-trading is that humans programmed the computers (serious).

From what I know it's probably more likely that they didn't - they created self-learning and/or evolutionary frameworks and let them develop themsevles. Scary stuff ;-)

 

[Glenn]

Could easily be true that trading gets harder because many things in life do: -
http://pespmc1.vub.ac.be/REDQUEEN.html

But surely the real issue here is one of price movement and volatility. So long as prices go up or down in reasonable amounts then there is something to trade. If prices didn't move then the computers would have nothing to do either.

And if all the human punters dropped out because they couldn't make money, then who would the computer programme 'buyers' be selling to and vice versa ?

And do these programmes interpret the News and other non-technical events which move prices ? - I don't think so.

Glenn

 

[$spreader]

OK then how do you explain that the top 3 traders in the Euribor are now computer models - whatever they are doing they are clearly edging out the humans.How long before it's the top 10 traders?

Sure markets will move and locals get handed a few crumbs here and there but the models manipulate the markets with HUGE bids and offers soaking up the market orders that the paper executes(I'm referring to the STIRS on LIFFE here).

As you say prices go up and down,if you are a position taker then they shouldn't interfere but I'm talking about the short term 'fast money' trades,the guys looking for small profits several times a day who just can't compete on any level whether it's funding,limits or even more human aspects like losing confidence after a bad day,financial worries or even if your kid has kept you up and you're not on the ball.The models are in every day,relentless and fearless.

And just to clarify,if the models were to evaluate the situation and then actually complete an order then would there be a problem - of course not - but in the STIRS the ridiculous size is never completed it's just using an edge,and in the process edging out locals.

 

[rols]

News, such as the said article is generally unreliable as it has to be newsworthy and is therefore rarely based on actual truth, more exaggerated and ill informed opinion much of the time. Who wrote the article?

Look at the Daily Mail or Sunday Times or example. In fact the Sunday Times is sooo consistently wrong it's worth taking the opposite position. Look at their recent recommendations on Gold and Cable.

There's an amusing guy posting on the DOW thread for a year now who is like an old fashioned soothsayer. He posts stuff(not his own judgement, just copies and pastes articles on the net) mainly predicting the imminent crash of the US economy. What the hell is he gonna do after last week!

As for this Black Box of doom this issue was partially covered in the Singularity thread. Any logical conclusion is that logic and mathematical predictions are pretty useless when it comes to the financial markets because of human emotions. That is the fundamental difference between a chess computer and black box trading software.

Computers cannot think organically like us humans - they are limited by a rather primitive language. Furthermore they do not have the ability of perception. Surely on a fundamental level that is all there is too buying and selling - the perception of what is good value and it's effect on supply and demand. This is why the Bunny Girls playboy stock picks outperformed all the professional finance houses because they picked stocks related to products they liked and used. This is why I bought Apple shares 10 years ago because I liked using their products. Can a computer make these kind of personal decisions.

Somebody once compared picking stocks to the competition newspapers used to run where there were 40 or so pretty girls and the prize went to the person who picked the no.1 choice of all the readers. So the way to win was not to pick who you thought was the best looking girl but who you thought everybody else would pick.

There is talk of quantum computing but I haven't seen any real evidence of that as yet.

 

[$spreader]

The article was in The Wall Street Journal on Feb 19th.

As for being based on actual truth,LIFFE,to their credit,must have recognised that their STIRS are being dominated by computer models and that market participants are unhappy as they have issued a circular asking that traders get in contact with their account managers and voice their opinion as it seems changes may be being made to their algorithm.

Please remember that the models I'm talking about are the ones in Euribor/Short Sterling and EuroSwiss.
They are not making long-term decisions,they are bid and offered for sometimes only 15 seconds,the problem is that they are bid and offered for up to 40,000 lots.Sometimes in Short Sterling,the market is bid for more than it will do in a whole day,so why bid for so many with no intention of doing them if it isn't a loophole in the algorithm?Many locals I speak to have been complaining for a long time,some even going into different markets because they can't compete any more without bidding for 10 times the amount they want and we all know how that story is going to end.

So the choice as someone posted earlier is to try a different market.How long before someone creates a model to dominate that one?Remember how everyone was up in arms about the Flipper?Wait until some brainbox develops his strategy into a computer programme only with 100 times the money to play with.What then,try another market maybe?

Sure there will always be a market with highs and lows and therefore opportunities to make money but I'm offering reasons why markets are becoming more difficult and I'll say it again,the top 3 traders in the Euribor are computer models,doesn't that speak volumes?

 

[rols]

The article was in The Wall Street Journal on Feb 19th.

As for being based on actual truth,LIFFE,to their credit,must have recognised that their STIRS are being dominated by computer models and that market participants are unhappy as they have issued a circular asking that traders get in contact with their account managers and voice their opinion as it seems changes may be being made to their algorithm.

Please remember that the models I'm talking about are the ones in Euribor/Short Sterling and EuroSwiss.
They are not making long-term decisions,they are bid and offered for sometimes only 15 seconds,the problem is that they are bid and offered for up to 40,000 lots.Sometimes in Short Sterling,the market is bid for more than it will do in a whole day,so why bid for so many with no intention of doing them if it isn't a loophole in the algorithm?Many locals I speak to have been complaining for a long time,some even going into different markets because they can't compete any more without bidding for 10 times the amount they want and we all know how that story is going to end.

So the choice as someone posted earlier is to try a different market.How long before someone creates a model to dominate that one?Remember how everyone was up in arms about the Flipper?Wait until some brainbox develops his strategy into a computer programme only with 100 times the money to play with.What then,try another market maybe?

Sure there will always be a market with highs and lows and therefore opportunities to make money but I'm offering reasons why markets are becoming more difficult and I'll say it again,the top 3 traders in the Euribor are computer models,doesn't that speak volumes?

I see. It's not fair is it?
What can be done?
I suggest human traders abstain from these markets. See how the BOTS like that!

 

[Pat494]

Old Labour isn't dead but lurking and trying to make a comeback. If they do somehow get their man to the top when Blair goes they will clamp down on all the financial markets in Britain calling for the abolition of "speculators" and implement huge taxes on dividends etc.
Up to their old tricks from the 70s again. Who will finance them though now that the KGB and Harry Pollit etc. are dead and gone.

 

[dickiedickieg]

Sorry to interrupt but a common misconception that requires clarification....

A computer trading model mechanically creates initiating and or liquidating orders and may even automatically execute these orders. They add to the diversity of market participants and are good for product longevity.

A computer allocation model abuses the electronic exchange algorithm to gain preferential participation as a price maker. This type of model makes it pointless to be a price maker and as such it is nigh on impossible for newcomers to enter the market. This detracts from user diversity and is bad for exchange longevity.

The top three Euribor traders are indeed computer ALLOCATION models and have effectively killed any chance of newcomers adding to liquidity. The Exchange will therefore have to make an attempt to even the playing field most likely by changing their algorithm to include a time element in tandem with order size, although banning allocation models in the same manner that they banned order splitting for improved allocation would be cheaper and more effective!

Reuters are working on / have a model that "reads" economic numbers automatically allowing a trader to pre input buy and sell orders based upon the numbers read. As soon as the computer reads the number the order is placed. Fabulous, providing the news is reported correctly!

 

[tomhunter]

Thanks alot everyone,

If these markets are setup for participants to trade in then surly if computers are dominating the markets things would change as if humans can't compete computers earn nothing and so things are changed by the powers that be. The markets such as the stock market are a necesary part of the economy right? Allocating resources where needed yada yada and so wouldn't the govornment or whoever always try to keep people participating in trading/investing in them.

Thanks