Learn how Blockchain, AI & Quantum Computing are revolutionising Algorithmic Trading in Finance

The gigantic computing power of Quantum Computers has the potential to cut AI model training exponentially, and the algorithms used for automated trading on exchanges in stock market and crypto exchanges can be optimized to an extent never possible before.

There isn’t any doubt in saying that computers have revolutionized the way we trade and move capital. Transistors and core processing power has rapidly evolved over the past 15 years allowing greater amounts of data to be processed in shorter periods of time. With that came the dawn of HFT(High Frequency Trading) to make decisions using predictive modeling to create large gains despite small changes in the price of equities or commodities. HFT allows institutions to dramatically evolve the strategy and scale by which they operate in the normal course of the day. As such, the volume of trades can increase exponentially to accommodate a multitude of data that is constantly streaming and correlated:

Barriers in the growth of HFT through Classical Computing

• The amount of data being gathered is increasingly challenging to maintain, especially as it comes from different sources and may not have historical significance from which to backcheck.
• Binary data processing (1s and 0s) in traditional form has its limitations based on compute power, internet bandwidth, and energy requirements. You can only add so many transistors and cores.
• The speed at which decisions need to be made in real-time to keep up with larger market movers has compounded rapidly.
• The volatility of the existing models and market affects the predictive capabilities of the value of future assets, risk becomes progressively more inherent in portfolios.

“ Let’s find out if AI and Quantum Computing have the answers”

The current technological infrastructure we are accustomed to is a linear representation of thoughts in the form of binaries but in reality, the thoughts we create through our mind has a lot of other dimensions of expression which is very difficult to model linearly. An attempt to do that would establish room for errors in representation as well as calculations. Quantum computing is a novel approach to address this issue by introducing qubits in place of binaries which can possibly represent infinite number of states between 0 and 1 minimizing the cause of errors exponentially.

AI on the other hand can supervise and execute a lot of activities automatically with the help of intelligence and insights grabbed cognitively from the heap of data we source in constantly through different mediums like news agencies, social sites, exchanges, financial institutions, governments and banks from across the world.

Additionally, by using natural language processing applications it can produce insight on the sentiment and relevancy of streaming data to allow investors or the HFT to make more informed decisions. For example, an HFT algorithm trading coal commodities augmented with a knowledge catalog and cognitive search platform could ingest data and correlate the significance of Jindal Steel Plants in the news, the growing popularity of green energy as a substitute for coal as seen in email newsletters, and the performance of companies like Greenko Energies to derive a positive or negative sentiment to influence the trading decision. More importantly, it can then store the context of the trade and querying of collections to impact future trading decisions.

Streaming, Storage, and Insights

Cloud computing provides the ability to store and correlate relevant pieces of data, and update at regular intervals based on new incoming data streams. Quantum Proof Blockchain Ledger can be used to store all the related data we have on the cloud in an encrypted form to maintain trust within the participants of the ecosystem. AI can hereby used to gather insights and create knowledge catalogs and contexts related to every trade that’s executed on the platform. Since, the data generated on a daily basis is on a scale of petabytes, quantum computers become the most relevant answer to achieve optimized results in minimum time which is crucial for every trading system to function efficiently.

Processing Power and Speed

Let’s now assume that an insight-driven cognitive search platform is implemented. How would institutions then process more data and do it faster than the others so that the AI engine can process and help make decisions? Additionally, how can it be processed not just to influence the decisions made on a single piece of equity, but a whole portfolio? The more data that comes in, the longer it will take to process and produce meaningful results, and even advanced GPUs can only get you so far.

This is the beautiful promise of quantum computing: rather than processing binary data (bits -1s and 0s), quantum computers use quantum bits (qubits) to superimpose or entangle bits onto subatomic particles. Superposition then allows that particle to maintain multiple states of data at once — rather than a linear stream of 1s and 0s, you could maintain multiple combinations of that data onto a single particle. Through entanglement, these supercomputers are then able to link together pairs of qubits (instead of 0 or 1, you have 00, 10, 01, and 11 that all exist simultaneously) of a plethora of combinations of data to create steady streams of correlation and allows the receiving quantum computer to process that incoming data at an extraordinary rate. To give further context:

Source: ArsTechnica

This processing power could enable immensely rapid transmission of data, cut down on AI model training exponentially, and increase the speed of informed decision making dramatically. Additionally, with this ability to solve optimization challenges at an increased rate, HFT would be able to make on-the-fly portfolio adjustments to maximize cash flow while minimizing risk.

While quantum computing is still in its nascent stages, 2020 seems to be an action time for this novel approach to be taken mainstream. It is still very difficult to superimpose particles with data and store quantum computers effectively (and they are not yet commercially available). The quantum leap achieved through the combination of AI, Blockchain & Quantum Computing presents a breakthrough solution to give investors additional power of artificial intelligence capabilities so that computers are directed to do the heavy lifting and they focus attention to different challenges such as relationship management, informed asset management, and optimizing brokerage of various trades.

The way I see the speed and relevancy of this approach rising with the growth of technocracy around the world, the day is not far when we see a news announcement that a quantum supremacy has been achieved and tested by XYZ corporation or research lab. The whole world would then rush towards searching for the best possible haven in the digital world to store their assets on for saving it to get compromised or hacked. It can be visualized just like what has happened now after COVID-19 has taken the world to knees vandalizing economies all around the world and everyone is in a vicious race to produce the vaccine in minimum possible time to save the world from this panademic. The lesson is that start preparing now for post quantum world as prevention is always better than cure.