A dark magic: The rise of the robot traders
By Laurence KnightBusiness reporter, BBC News
"Humans cannot compete on speed, it's as simple as that."
Ten years ago, John Coates was a trader in Wall Street.
Today, he is a neuroscientist at Cambridge University, and spends his days monitoring traders' hormones to see what makes them tick.
"There are simple tests you can do. When you see a green light… you click a mouse. The fastest you can do that is 100 to 120 milliseconds. Any basic cognitive processing, figuring things out, then maybe 200 to 300 milliseconds.
"The trouble is, the boxes – last time I looked – they were processing a trade in 10 milliseconds, and today I think… we're talking about millionths of a second."
Those "boxes" are the robot traders – computers that make their own decisions about when to buy and sell, but a thousand times faster than any human can.
When you think of a trading floor in London or New York, perhaps you imagine a gaggle of sweaty men elbowing each other out of the way as they use elaborate finger movements to convey their frantic orders.
It's an image popularised by the 1980s comedy Trading Places. But it's also 30 years out of date.
For the fact is that financial trading has undergone a computerised revolution akin to Amazon's takeover of the High Street. All the real action has moved to cyberspace.
Take the New York Stock Exchange. These days, most trading does not take place behind its famous neoclassical facade just off Wall Street, but in far less glamorous New Jersey.
That is where the NYSE has set up a vast electronic trading facility covering 10 acres (four hectares), housing row upon row of computer servers.
And many more acres are occupied by the servers of the robot trading firms hooked up to it.
Nerdy brainboxes
Computerised trading is an inherently secretive world.
The trading firms keep a tight hold of their trading strategies, people and computer code (or "algorithms").
Otherwise a rival might figure out their complex-yet-fully-automated trading patterns, and then copy them, or worse still, dupe their computers into handing over millions.
Keep Reading: BBC News – A dark magic: The rise of the robot traders.
