This is an interesting, well-written and thought-provoking article from Robert Harris, author of "The Fear Index", which I discussed with him on BBC Radio 4 last year.
I'm not sure I agree with his analysis or the conclusions he draws, but it's a good read.
This is what he has to say aboout traders he observed working at a quantitative hedge fund in Geneva...
The traders -- young, casually dressed, quiet, donnish -- are about as far removed from the stereotypes of Oliver Stone's movies as it is possible to get. They sit at their screens and observe the trades -- in twenty minutes I watched as one particular algorithm made $1.5 million -- with all the passivity of pilots in a fly-by-wire jumbo jet. There is something vaguely creepy about seeing young men (they are mostly men) who twenty years ago would have been in the laboratory or the lecture theatre now devoting themselves to making money.
And his analysis of the Flash Crash of 6th May 2010...
The electronic Arca exchange began to break down under the strain and had to be temporarily taken off line. It was at this feverish juncture, at around 2:30 pm in Chicago, that an algorithmic program entered the market, charged with selling 75,000 "E-minis" -- electronically traded S&P 500 future contracts -- with a notional value of around $4 billion. A myth subsequently arose that the flash crash was due to a trader's "fat finger", selling ten times more contracts than he intended. The truth is more interesting. To limit the impact on price of such a large disposal, the algorithm was programmed to restrict its trading so that its volume of sales averaged no more than 9 per cent of the total market at any given moment. The disposal was therefore predicted to take up to four hours. But with the market ten times its normal size, the algorithm adjusted accordingly and proceeded to complete its task in just nineteen minutes, sending the Dow into free fall.
He concludes...
The gulf in understanding is now not so much between the humanities and the scientists as between bewildered humanity and a global financial system that seems both utterly mysterious and highly unstable. Gordon Moore himself, a few years ago, expressed his fears about his own law: "It can't continue forever. The nature of exponentials is that you push them out and eventually disaster happens." We need as a species to wake up to this danger before science fiction comes true, Darwinian rules apply, and we discover that it is not so much the machines that are working for us, as we who are working for the machines.
I don't agree with him that we're all now working for the machines. We're not in Terminator territory yet, and I honestly doubt we ever will be. My own view is that as human beings, as long as we continue to learn, to grow and to use our brains, we will always be in control of the computers, not the other way round. But that's just my opinion, many will disagree.
The article is definitely well worth a read, as is his novel "The Fear Index". Draw your own conclusions...
