A recent article in The Economist, “The rise of the financial machines”, reaffirms the increasingly evident fact that financial markets and trading are no longer suitable for human activities, and best left to machine learning and algorithms. The old image of brokers rushing round the stock market to place their orders or the trading room filled with traders with a telephone in each ear are now an anachronism.
Traders now require a completely different set of skills, among which is knowing how to write code. Traders must have the ability to develop, understand and adjust an algorithm that can analyze with something more than a gut feeling, intuition or a premonition. Algorithms are increasingly more efficient at carrying out a growing number of analytical tasks needed to make decisions such as risk estimates. For many people, this will mean learning new skills, or simply being replaced with machines people capable understanding them. As is becoming clear, automation no longer applies just to dull, dirty, dangerous or demeaning jobs, and now applies to traders on Wall Street.
For the moment, machine learning cannot accurately predict the functioning of a market. But it can be used to predict many specific behaviors better than humans. Is it necessary to know how to program in order to carry out this type of analysis? No: many sophisticated analytical tools of this type are getting easier to use, and many complex analyzes can be carried out by choosing options in a menu, which makes them more efficient and more likely to reach production status. But the people who use those algorithms now require a new skill set.
If this is happening in the financial markets at the level of professional traders, what about amateur investors who want to manage the purchase and sale of their shares, helped by the race to the bottom in commission-free trades of stocks and exchange-traded funds? This too, will soon be an anachronism: if the professionals can’t beat the market, what chance to mere mortals stand, with their outdated analytical tools? The growth of automated services and passive management I talked about recently is no accident
In short, it’s the end of an era.
This article was previously published on Forbes.
(En español, aquí)