An Interview with Professor Alex Preda

By Mike O’Hara and Ricky Treadwell, 24^th January 2013

The ‘rise of the machine’ is a phenomenon frequently hyped up in the financial media. It stirs up luddite-esque emotion from many investors and brings about a fear of the unknown. There is however hope for humans. Professor Alex Preda talks to HFT Review about the revival of Man in the battle against the bots.

This interview covers Alex’s ground-breaking research into the modern day retail investor. It will necessarily evoke opinion, so please feel free to contribute yours to the discussion box at the foot of this page.

Alex Preda is a professor of finance at King’s College London. He has recently conducted the project Technology, Action and Cognition in Online Anonymous Markets: A Sociological Study of Non-institutional Traders and is investigator on Evaluation Practices in Financial Markets, a five-year project funded by the European Research Council. In addition he is author of the book Framing Finance and an expert on the man vs. machine debate.

HFT Review: Alex, welcome to HFT Review. Can you start by providing some background to your research?

Alex Preda: Certainly. Since 2005 I have been looking more and more at electronic finance and how traders cope with trading technologies, how their use of technology influences their decision making, their judgement and their behaviour. During the last phase of my research I have looked more specifically at how traders relate to market automation and to trading robots.  To give you a more concrete image of what I’ve been doing, I’ve not only been talking to a number of traders – about 60 – but I’ve also sat next to them while they were trading using these technologies and observed what was going on.

HFTR: From your observations, how do you think the behaviour of traders has changed as markets have become more automated? 

AP: There are several things to be mentioned here. First, the behavioural changes from retail investors means that, contrary to popular belief, their role in the market is not diminishing. This theory is being proved wrong by a new generation of computer-savvy young people who are educated, who know how to program and are not afraid of computers. They are used to spending hours in front of a screen and their attitude towards the valuation of the securities they’re trading – and their time horizon – is radically different from that of the traditional investor who bought a few shares and then sat on them for years.  During the research I have done I haven’t seen one case of a young retail trader who trades long term. The time horizon has been shrinking and shrinking. The attitude that one buys securities and keeps them in a portfolio for a long time, is not there anymore.

HFTR: So would you say that the retail trading mindset is now geared towards speculation rather than investment?

AP: Yes, definitely so.

HFTR: And what is this new class of trader actually doing when they trade?

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