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Why do traders in investment banks feel their jobs are immune from AI, etc?

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Re: Why do traders in investment banks feel their jobs are immune from AI, etc?

#171

Post by 21 »

cm2187 wrote: post #116
vegabook wrote: post #66

because traders are used to seeing such predictions fail. Reuters was trading FX electronically since the early 1990s. At the tier one IB I worked for the IT budget was 500m USD a year (across products), and that was in 1997! Huge resources were thrown at automation. However, to this day, large trades in FX (> 10m USD notional) are still almost exclusively performed by humans over a telephone or over the bloomberg me…

> because traders are used to seeing such predictions fail. There was a joke from the 80s: soon the whole trading floor will be replaced by a computer, a man and a dog. The man presses the button to turn on the computer every morning. The computer operates all of the transactions and settlements automatically. And the dog is there to bite the man if he touches any other button. 30 years later, still no dog on the flo…

I think the joke was that the man is there to feed the dog, and the dog is there to keep the human from touching the computer.

Re: Why do traders in investment banks feel their jobs are immune from AI, etc?

#172

Post by melling »

snakeworld wrote: post #108
vegabook wrote: post #92

Earlier quoted context omitted.

The difference is that chess, go, etc are all essentially rules based. Finance has very few rules that do not break over time. Just look at QE. Arguably the financial market represents the collective intelligence of a huge amount of very clever people. Machines are only just starting to challenge a single human at a rules-based activity. We're very far from beating a brutally darwinian, impressively adaptive, human h…

QE?

Here's my first result from Google:

https://en.m.wikipedia.org/wiki/Quantitative_easing

Google is getting really good.

Re: Why do traders in investment banks feel their jobs are immune from AI, etc?

#173

Post by mathattack »

jgalt212 wrote: post #164
mathattack wrote: post #151

A lot of traders are losing their jobs, and many fear this. As other mention, though, Wall Street makes a lot of money trading the edge cases. For instance, many people thought derivatives traders would become obsolete when the Black Scholes formula arrived. In reality, the model grew the size of the derivatives market, and traders made money knowing where the model was wrong. (Example: It assumes constant volatility…

> When technology enabled FX trade spreads to be less than a penny This also created the incentive for collusion/price fixing in the FX market as regular bid/offer spreads became too small to make any money.

This is true too. (And perhaps another reason traders don't fear computers!)

Re: Why do traders in investment banks feel their jobs are immune from AI, etc?

#174

Post by anonu »

I generally don't think that all traders believe their jobs are immune. Any rational person that looks back at history will observe that the markets have constantly been changing due to technology that speeds up a trade or makes it more accurate. However, most of the significant changes have not been to due to Artificial Intelligence innovations. Instead, those changes have been about automating tasks that were once repetitive. I wouldn't necessarily call that AI.

If you'll allow me to simplify the IB Trader's job: there are 2 types of traders: agency and principal traders. Agency traders build relationships with clients, accept orders from them, execute them in the market. They make money on commissions. Principal traders will take risk. Sometimes on behalf of a client - on the back of a client order - or sometimes purely for the bank's own account.

The agency traders have seen their roles decimated by technology - because much of their role (minus the relationship building part) was automatized. On the risk-taking side, AI has crept into some places - albeit in very narrow use-cases. For example, we've seen the rise of the robo-advisor, where an "algorithm" comes in and automatically adjusts your portfolio to reduce risk and increase alpha. Well, the risk reduction party is well-known (Markowitz portfolio theory). But the increasing alpha part is the difficult thing. And AI seems to be quite far off in its ability to be a stock picker - simply because the passive approach is superior (ie, no intelligence needed at all).

Re: Why do traders in investment banks feel their jobs are immune from AI, etc?

#175

Post by mathattack »

21 wrote: post #162
mathattack wrote: post #151

A lot of traders are losing their jobs, and many fear this. As other mention, though, Wall Street makes a lot of money trading the edge cases. For instance, many people thought derivatives traders would become obsolete when the Black Scholes formula arrived. In reality, the model grew the size of the derivatives market, and traders made money knowing where the model was wrong. (Example: It assumes constant volatility…

> Perhaps the best analogy is a chess expert paired with a computer can beat either the computer or the expert alone. This has stopped being true for a number of years. Computers play chess so much better now, that a human will actually impede it. Think this way: could a 12 year old (the human) help a math graduate (the computer) on some problem? Or more likely he will just be a distraction? More elaborations on this…

Fair enough, it's a weak analogy for chess. [0] The pairing is tighter in financial markets where the outcomes (prices) are not necessarily deterministic and the models are incomplete.

[0] http://marginalrevolution.com/marginalrevolution/2013/11/wha...

Re: Why do traders in investment banks feel their jobs are immune from AI, etc?

#176

Post by lordnacho »

I've got a story that connects the new and the old way of trading.

When I joined the industry just after the millenium, I joined a firm of guys who used to be floor traders. Basically the guys from "Trading Places" with Eddie Murphy: coloured coats, loud shouting, eating contests. As London got automated, they moved "upstairs", which basically meant holding the eating contests in a room of screens and squawk boxes. It was a fun time (but not for everyone; old school also means macho culture and sexual harassment lawsuits). One day I thought to myself "in what other job in the world would you find your boss breakdancing?"

I checked up on that breakdancing guy the other day. He's continued along the way of old school market makers, taking calls from brokers and manually entring them into a system. He literally said "Nacho, I'm a dinosaur. I can't code, but I have 25 years of experience trading. And trading changed. Everything is eaten by the computers, and on top of that we have free money keeping the market from having more than one opinion."

We talked about a guy who used to work in the firm we were at. He'd gone the other way, and caught the start of the HFT boom. Now he's a billionaire. It's amazing that someone could go from the pit to trading several percent of global daily volume each day.

But basically, the old school traders are well aware of what the computers can do. They aren't stupid, the ones who can't code know they can't, and they can see the writing on the walls.

As far as I can tell, there's only one area of trading that's relatively immune to the machines. And even that isn't completely immune. It's special situations. That's where you're looking at corporate events like mergers, rights issues, and so on. It's somewhat hard to automate because there's just not that many things to make bets on. One guy can sit and read through a bunch of events and put on big bets, and there aren't that many people who have the specifics of how to make the decisions. So the benefits of automating it are not as huge as with most other types of trading.

Re: Why do traders in investment banks feel their jobs are immune from AI, etc?

#177

Post by deepnotderp »

IIIIIIII wrote: post #156

Famous last words for a lot of businesses: >When it comes to AI/Machine Learning: the nature of ____ and markets are drastically different to other fields that AI/ML have previously excelled in. The main reason being what are the laws and rules that govern how an AI/ML should view a field? >Since the very nature of a market is… a constant change respecting an infinite and broad amount of variables (____), a complex s…

Yup, agreed. Iirc, AI on twitter predicted trump (my own model trained from 2007 and onwards) data. Also, I know for a fact renaissance has been using ml for a while.

Re: Why do traders in investment banks feel their jobs are immune from AI, etc?

#178

Post by zump »

bboreham wrote: post #134
chillydawg wrote: post #101

Earlier quoted context omitted.

They are exactly what they claim to be: specialists. You need to become one in some area that banks deem valuable. Current white-hot areas would be FPGA, machine learning (but you'll also want a PhD in statistics, or at the very least a good degree in it from a good uni) or be a badass systems developer who can write absurdly low latency code in terms of allocation, cache coherency, network sympathy and so on. To get…

Large IBs do hire dozens of new graduates every year into IT. You have to be bright, articulate, interested.

That tends to be Java CRUD not trading logic.

Re: Why do traders in investment banks feel their jobs are immune from AI, etc?

#179

Post by wickedlogic »

Traders will still be needed to justify bad decisions, or 'good' logic with bad outcomes run by AI. ;)

Everytime I see a gameshow where you can 'bank' your current winnings, ... I imagine the future of trading will include some strategy that has an AI yelling those sorts of things to other ai agents acting in concert. The strategies of the macro stock market positive outcomes, being applied to micro stock actions. https://www.t0.com is also going to be a fun reality.

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