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The Race to Zero

 
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Old 23-09-2011, 11:13 AM   #1
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The Race to Zero

"...Driven by a potent cocktail of technology and regulation, trading in financial markets has evolved dramatically during the course of this century.
Platforms for trading equities have proliferated and fragmented.
And the speed limit for trading has gone through the roof. Technologists now believe the sky is the limit.

This rapidly-changing topology of trading raises some big questions for risk management.
There are good reasons, theoretically and empirically, to believe that while this evolution in trading may have brought benefits such as a reduction in transaction costs, it may also have increased abnormalities in the distribution of risk and return in the financial system.
Such abnormalities hallmarked the Flash Crash.
This paper considers some of the evidence on these abnormalities and their impact on systemic risk...." http://www.bankofengland.co.uk/publi.../speech509.pdf
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Old 23-09-2011, 09:00 PM   #2
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While this paper is a little too technical for my understanding, it brings up some interesting points. Masive computers are trading against one another with incredible speed. There is a huge turnover of stocks, with profits made from a few cents. The algorythms use A.I. and change weekly as they learn.

Where does this leave me? How can I compete against these machines? It's like 'Electric Dreams' has come true!




Johny.

Last edited by Johny_come_lately; 23-09-2011 at 09:40 PM.
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Old 24-09-2011, 02:26 PM   #3
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"Where does this leave me? How can I compete against these machines? It's like 'Electric Dreams' has come true!"


It will decrease trading costs, but HFT will affect hedge funds, banks etc...
But how it will affect individual participants needs to be tested..
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