Trading floors were once the preserve of adrenalin-fuelled dealers aggressively executing the orders of brokers who relied on research, experience and gut instinct to decide where best to invest.
Long ago computers made dealers redundant, yet brokers and their ilk have remained the masters of the investment universe, free to buy and sell wherever they see fit.
But the last bastion of the old order is now under threat.
Investment decisions are no longer being made by financiers, but increasingly by PhD mathematicians and the immensely complex computer programs they devise.
Fundamental research and intuition are being usurped by algorithmic formulae. Quant trading is taking over the world’s financial capitals.
New paradigm
Mathematicians have long played a vital role in risk management at financial institutions, but their skill set is increasingly being used to make money, not just to stop losing it.
Ian Ellis, director at Ride Arcade Limited, explains how electronic trading works
Firms are now employing gifted academic statisticians to track patterns or trends in trading behaviour and create formulae to predict future market movements. These formulae are then fed into powerful computers that buy and sell automatically according to triggers generated by the algorithms.
Continue: BBC News – Quant trading: How mathematicians rule the markets.
Pic credit: Jr. Deputy Accountant
