The Art of Trading

On the BBC website, there is an article on robot traders, commonly known as boxes (a-dark-magic). In the article, it explained the use of robot traders, which are basically fully-automated computers that execute the trading strategies of their trading firms, and the dangers involved in the practice.

The article is mainly concerned about the dangers of using robot traders, using the Flash Crash of 2010 as an example. Now, the warning about using robot traders is correct because I have serious doubts about the use of robots and computers to make trades. However the thing that caught my eye in the article was not the change in the culture of trading and traders, but numbers of traders now operating in the market.

Remco Lenterman, the head of a firm that uses robot traders was quoted saying that an equity desk that used to employ 80 and 100 of human traders 10 years ago, will now employed about 8 today due to robot trading. Now those 8 guys will be mostly computer engineers.

Now a 90% deduction of the workforce in just 10 years may seen drastic to many people, but I believe him. I used to be a futures trader at the Singapore Exchange (SGX) until about 5 years ago. Even now when I tell people I’m no longer there, people are surprised because I was working there for about 10 years. When I first started, the futures exchange was still known as SIMEX. So with almost a decade of experience behind me, most people are surprised that I had quit. 

Most people are also kind of surprised when I say that I jumped before I was pushed. The reason I jumped was because even back then, you could see that everything was getting computerized. Pit trading was been phased out as the big firms were pushing for online trading, mainly to cut cost. It did not take a smart man to realized that with online trading, less traders will be needed. Since then things have been getting worse for traders.

In the past, traders used historic trends, analysis and experience to gauge if a stock was going up or not. Now the rise in robot traders means traders are no longer needed. Trading firms used complex algorithms to decide if they should buy or sell. Correction; they let their computers decide to buy or sell. Frankly to me, that's a disaster waiting to happen.

The main problem is that people are treating trading as if it's a science. Something they can figure out if they just apply the correct math formula to it. It's not. Trading is not a science, it is an art and there is no one-size-fit-all formula to it. That's why I say robot traders are disasters waiting to happen. Sooner or later, mistakes will happen, only this time there will be no humans on site to fix the problem.