Gordon Gekko makes way for trading software

2019-03-01 01:04:10

By Robert Matthews BRAD BAILEY was visiting the trading floor of an investment bank in New York City when he first noticed it. As a former Wall Street trader, he should have felt at home amid all the screens, phones and bustle of billions of dollars in trades. But that was just it: there wasn’t any bustle. In fact, there were hardly any traders. “You could hear a pin drop,” he recalls. Then it sank in: machines had taken over the role of people and computer servers don’t make any noise. There’s a quiet revolution happening all over the financial world. Gone are the days of Gordon Gekko lookalikes screaming obscenities and dumping a loss-making stock onto an unsuspecting market. Investors have realised that the processing speed and sheer volume of trades a computer can make can help them to outwit the sharpest of dealers. As a result, they are investing heavily in what has fast become an arms race between investors. Their goal is to develop the best “algorithmic trading” systems – software that helps decide which trades are the most profitable, and then does the deals. Ten years ago, algo-trading was almost non-existent, but according to a recent report by Bailey, now at the Boston-based consulting firm Aite Group, one-third of all trading decisions in US markets are now made by machines. He predicts that by 2010 more than half will be done this way. At Deutsche Bank in London, over 70 per cent of a category of foreign currency trades, called “spot trades”,