From your everyday Google searches to high frequency trading, algorithms are everywhere in your everyday life. They play a crucial role in the functioning of our everyday lives working behind the scenes to simplify, automate and enrich our experiences. From the movies we watch, books we read, people we follow and pages we like.
We are being controlled by 'Bots' that attempt to think, act, behave.... and trade like we do. One big difference, its on an enormous scale and faster than we can ever imagine.
Trades are now being executed under 10 microseconds, bearing in mind it takes 350 microseconds to blink!
After reading "Dark Pools" it has come to my attention the future in quant finance is moving towards Artificial Intelligence or AI as its more commonly known, firms looking for the best programmers who have aptitude in exploiting speed of code, increasing speed of internet and understanding the wiring or 'plumbing' behind the connections to the exchanges. Just have a look at the jobs advertised at http://www.quantfinancejobs.com/ and you will understand exactly what I am talking about with openings requesting a PhD in a maths/applied maths/statistics/computer science/physics from a top school with a proficiency in programming in C++/C#/Sql/Java/R/Matlab ( I have a long way to go)!
With the toolbox consisting of neural networks, fuzzy logic, genetic algorithms, machine learning and expert systems, applied mathematicians are able to take advantag
e of algorithms designed to scalp, pair trade, arbitrage and mean revert with machines thinking faster than you think you can think.
Algorithms are buying and selling millions of dollars worth of financial instruments in split seconds on the large indexes and dark pools taking advantage of the 'basic at home trader' and 'investor' pushing prices up and front running when these algo's read a 'large whale order' coming in.
Algo's called "Stealth" (developed by the Deutsche Bank), "Iceberg", "Dagger", "Guerrilla", "Sniper", "BASOR" (developed by Quod Financial) and "Sniffer" are giant sharks just waiting to exploit their strategies, gobbling us and each other up in a feeding frenzy when prices aren't 'mathematically sound'.
While there is an argument that the electronic market is better than the old days of human traders, increasing liquidity and decreasing spreads, there are also the moments of weakness when computers get stuck in an infinite loop aka a selling frenzy (recall Knight Capital 2012 losing $400 million).
While it looks like a daunting time for financial markets. One cringes at the thought that markets are controlled by whoever has the best technology, there still is a big demand for the scientists who can use the technology to best effect. It still seems knowledge of stochastic calculus & processes, PDE's, measure theory, probability theory and their programming applications are important basics or building blocks for the quants these days the general trend is increasing specialization in computer science and AI using the basics along with speed to exploit price patterns.
The Alpha Hunter
