Trading jobs in London expected to fall 90% because of algorithmic trading

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itmediaco

City trading jobs to fall by 90% as banks take up algorithmic technology

The number of traders employed in the City of London will have fallen by a massive 90% by 2015 because more banks are moving towards all-electronic algorithmic trading operations, according to a white paper released by IBM.

The uptake of algorithmic trading, which is conducted by computers and requires little manual input or supervision, has major implications for skills and the local economy in the City as employment levels will fall dramatically.

IBM forecasts that by 2015 nine out of ten traders currently employed by financial firms will have lost their jobs due to adoption of automatic algorithmic trading.

Banks already employ more IT staff than traders, says IBM, and algorithmic trading is set to dominate the market going forward. Banks will continue to recruit programming staff to develop more complex algorithms and compete with powerful technology.

IBM says in the algorithmic race, the winners will be those with the ability to reduce latency (the time it takes to react to changes in the market and execute a trade) to an absolute minimum.

Despite these changes the white paper says London will continue to be a key international financial centre.

http://www.finextra.com/fullstory.asp?id=15955


Seems like being first to market won't even be enough anymore...
 
I don't know much about London's trading sector, but 90% seems like a pretty steep estimate. Are they mostly a bond city? Don't they have a sizeable presence with energy and metals as well? Anyway, it's scalpers that are most likely going to be affected. It's easier to program trade interest rate derivatives and equities than commodities. Even then, there were always be a need for sell-side traders, long-term traders and position traders.
 
Quote from Iceman14:

I don't know much about London's trading sector, but 90% seems like a pretty steep estimate. Are they mostly a bond city? Don't they have a sizeable presence with energy and metals as well? Anyway, it's scalpers that are most likely going to be affected. It's easier to program trade interest rate derivatives and equities than commodities. Even then, there were always be a need for sell-side traders, long-term traders and position traders.
More...

It will come down to who/what beats the market... 10% probably refers to the star traders.
 
Its funny how people find self interested white papers a little unconvincing. The great thing about being a forecaster is you only have to get one right in a blue moon to succeed.
 
PART 1:
At the current rate of exponential growth in algorithmic trading, the trading arena could sound very similar to the interview below (except we will be talking about trading and not chess), in 10 years time. Computers have completely changed the chess world in the last 4 or 5 years - and the parallels in trading are not far off IMHO. Ten years ago all the experts said that computers could never defeat a human player - yet the unthinkable has happenned and now only a handful of of players in the world are able to regularly beat the chess computer program "deep fritz". Deep fritz defeated Kasparov, the ledgendary world chess champion towards the end of the grandmasters career a few years ago. It could well be that programs and there owners will be fighting it out in the trading arena in 10 years time with very few humans on the "other side" of the trade.

ChessBase, 13/03/2006

http://www.kramnik.com/eng/interviews/getinterview.aspx?id=77

Questions and answers from current world chess champion - Vladimir Kramnik on how computers have revolutionised the chess world.

The computer match
FF: Okay, to the subject at hand. You are going to play another match against a computer. You played one, back in 2002 in Bahrain, and drew it. In the meantime the programs have become much stronger, and the computers on which they run much faster. Your own brain, I believe, has not become bigger or faster. So what do you think your chances are?

VK: I really don’t know yet. I know for sure that I have chances, otherwise I wouldn’t play the match. It would just not be interesting. For me playing the computer is a very serious challenge. I think that it is maybe one of the last opportunities for a human being to beat the machine. I consider the computer to be the favourite, and I mean in any match against any human being. They have really become incredibly strong. But we are still at a point in history where there is a chance. I know that I have a chance. I think that I can use Bahrain as a very good lesson, because I gained a great deal of experience there. This will help me for the match in Bonn. But of course I understand that computers have not stayed in one place, and that they are constantly developing. I can see how Fritz is getting better and better.

FF: So you feel that you are the underdog in this match. Is that an advantage or disadvantage?

VK: Actually it was the same when I played Kasparov. Everyone was saying he was the favourite, and that doesn’t upset me at all. In fact the bigger the challenge the greater my motivation. Even if I understand that probably my chances are a bit worse than that of the computer, it doesn’t make me depressed or frightened. I know from the experience with Garry that I can win such a match, so why not do it again? I am very optimistic that I can really put up a very serious fight, and I would be incredibly happy if I manage to win. Because maybe it will be the last human victory over the computer.

FF: The Fritz programmers are not particularly happy to play against you. They would prefer some other players, because they consider you particularly unpleasant and difficult. Do you know why?

VK: I think it is about my style. I too believe that I might be one of the most unpleasant players against the computer. Because my style is more based on positional play, on endings – I don’t think I am betraying any secrets if I say I’m pretty good in endgames. These are elements that are the weak spots of computers. A very combinational player who relies on his calculating skills…

FF: Or her calculating skills…

VK: Yes, exactly, like Judit. These players have much less chances against computers, because they are going to lose the battle in calculation anyway. My own play is not based on calculation, so that in spite of all the plusses which computers have I also have a few trumps myself. There are some very strong players who have no trumps against computers, but I think I have a few, and I will try to use them.

FF: In Bahrain you played a dramatic sacrifice against Fritz. That was pure calculation.

VK: Yes, game six. You know the computer is quite frightening, but I have a certain self-respect as a chess player. If I think that some move is the best, even if I understand that it is not wise to play it against a computer, I still have to make it. It is very easy to lose your self-respect if you make weaker moves on purpose. It is very difficult to force myself to do it. At that time I thought the knight sacrifice was very interesting, I liked it, so I made it, even though I knew it was very risky. Of course it was a wrong decision, because the computer out-calculated me.

FF: So that is the biggest danger for you: that you might see a very good move and you will play it, even if it is hazardous to do so against a machine.

VK: Of course. You know you cannot win a game without any calculation. Of course you can try to achieve positions where calculations are not as important as positional considerations, but you cannot win a game without calculating variations at all. Since computers are so incredibly strong at this there are always chances that when you reach this stage of the game you will be outplayed. But you have to prepare for the calculating battle, and I have to be ready to calculate variations very well.

FF: Actually you have won some very nice tactical games against computers…

VK: Yes, like in Dortmund in 2000. But those were different times. You can no longer win games by putting all your pieces on the g-file and mating your opponent’s king. That is not possible any more. Programs like Fritz now understand what you are doing. Everything is quite different, even from Kasparov’s match against Deep Blue. Fritz is totally different to Deep Blue, you cannot use the same strategy, you cannot do the same things. You have to adjust, follow the development of the programs, see where they are going. Just like the programmers are following the developments of the chess players and preparing for them. It is the same thing. In this sense the preparation is similar to when you are preparing for a world championship match. You check all available games of your opponent, you try to see where he has improved, where he has weaknesses, find modifications that have been made in recent times. Fritz is changing quite dynamically, I can see that.

FF: So you will be preparing very seriously?

VK: I have not started yet, especially because of the theoretical match with Topalov, which greatly influences my plans. But once everything is clear I will start to prepare, very seriously, for the match against the computer.

FF: Actually you already know your opponent, Fritz, quite well, I believe.

VK: Yes, I use it every day.

FF: Why Fritz? There are other strong programs around.

VK: Well, for one thing I don’t have any other chess engines. But it is also because I played the match against Fritz in 2002, and I have got used to this program. I really understand it quite deeply, and know when I can trust its judgement. But even other chess players, top chess players with whom I speak, prefer it to the other chess programs. That probably means that they find it a bit better than others.

FF: Or just force of habit. What about massively parallel giant hardware machines…

VK: You mean Hydra? I don’t know it too well, but to me it doesn’t seem to be very much better than other programs. I saw the match it played against Adams, which was quite frightening, because there was no fight, not even a single chance for the human being. But I think in a way it was Mickey’s fault, because he did not prepare enough. In a match against a computer preparation is very important, absolutely critical. Probably Mickey did not take it seriously enough. He saw how I had made a draw against the computer, and Kasparov had done it too in New York, and probably he thought it would not be too bad. But in fact I know very well that if you are not incredibly well prepared things can go horribly wrong.
 
PART 2:

Working with computers
FF: Since when have you been working with computers? When was the first time you switched on a computer and did chess with it?

VK: I believe it was in the very beginning of 1993, on some kind of a “366” computer. I don’t know the details, just that it was very slow. I was trying to learn how to use a computer. Fritz I started to use, seriously, in 1995. I remember that was after my match with Kamsky. During my preparations I was not using any chess program. I guess Kamsky was already doing it, and it was the reason why I lost the first game. I lost it out of the opening, to some incredible computer move which is very difficult to find or to refute over the board. It was clear to me then that it was a big advantage to work with a computer program. After this experience I realised that it was probably time for me to get Fritz running on my computer.

FF: Looking back at your work with computers would you say you are happy that they appeared on the scene? Is it good that they can play chess, and can do it so well? Or is it a negative development for the game?

VK: Well… it’s not bad for chess, it’s just bad for chess players [laughs]. One must understand that we have to work ten times more than before, because the amount of information is so great. Also you have to be much more precise when you analyse positions than before. In the era before computers you had certain interesting ideas, a moves that looked good, and that was enough. Your preparation was done, you just went out and played the move. Basically your preparation took two hours. Now the same thing will take five hours or more. You have to check all the games of your opponent, then you check everything that happened in the line you are planning to play. Then you find out what Fritz say about the ideas you have come up with, and try to remember this all. So you are working much harder.

FF: Which is regretful?

VK: No, it is normal. There are certain developments, scientific progress, which we cannot stop. It is completely fine with me. There are also certain points which are very positive. Computers make it much easier to analyse your games and find out where you made mistakes. It is very good for your self development. You don’t have to analyse your games for weeks, you can find out very quickly what are your weak points and how you can eliminate them. Secondly it is much easier to gain knowledge, the knowledge that is necessary to play at a very high level. In previous times I remember how I was working with books, encyclopaedias, taking much more time to find anything, to simply gain theoretical knowledge. Now it is much faster, and I think that is one of the main reasons why chess has become younger and younger. I am pretty sure it is because of computers.

FF: Do computers improve your style of play? Are tournaments, especially at the highest level of chess, becoming more interesting, or are they duller?

VK: I don’t know whether computers are improving the style of play, I know they are changing it. Chess has become a different game, one could say that computers have changed the world of chess. That is pretty clear.

FF: In what way? Are games at the top level more exciting or less exciting; are they more daring or less daring, more interesting or less interesting?

VK: That is very subjective. For me as a professional I have one view, and I guess amateurs have quite a different perspective. For me most of the games played at the top level are interesting. Even a short draw can very often be interesting and critical to a certain variation. But the games themselves have become very different. There is much more tactics involved, much more complications. These days, thanks to computers, in order to get anything out of the opening you have to go for complicated positions. Especially if you want to win the game. You cannot do so by simply getting a slightly better position and slowly grinding down your opponent. Well, actually you can, but it is becoming more and more difficult. So people are looking for complications. You can see that in recent tournaments, like just now in Morelia/Linares. Most of the games are being won in deep complications.

FF: That makes it sound like chess has become more interesting.

VK: Yes, you can say so, if that is your taste. For myself I can say that I enjoy pure positional games just as much as complicated ones. But amateurs and chess fans of course love wild complications and combinations, which I can understand. For me the most important thing in chess is the level. If a game is played at a very high level I don’t care so much if it is complicated or dry, in both cases it brings me great pleasure. If a game is very complicated, with a lot of sacrifices but also a lot of mistakes, I cannot enjoy it as much. So for me it is more a matter of quality than of the style of the game. I think this is true for most of the top players.

FF: One last question: what does it feel like when a chess fan with a rating of maybe 1400, who has been following your game with a computer, comes to you afterwards and points out that you made a mistake or overlooked a win on move 32? Or that you missed a forced mate in 16?

VK: Yes, that is actually a problem. For me it is not so bad – I am a very simple guy, you know, and used to criticism. But you get the feeling that people are losing respect for chess players. Of course it is very good and very enjoyable for chess lovers to have a chess program at their side, to be able to follow the games and to really have a clear idea of what is going on. Even without a commentator you can switch on Fritz and more or less understand the moves. But sometimes amateurs, especially those who are not very active themselves, get the feeling that we are not playing that well, that we make mistakes all the time, that we need twenty minutes to play a move which Fritz finds in a few seconds. They may get the feeling that top chess players are not so strong at all. But this is not true. It is an illusion. With a computer at your side it is very easy to pass judgement, but when you are alone at the board it is a different matter. I actually think that the general level of play today is higher than ever before, but because computers show you so easily and so quickly every mistake it may seem that it is lower. In former times every complicated move, every interesting sacrifice, was met with great approval and enthusiasm. Now you just switch on your Fritz and you can see what is going on, whether the move works or not. So the only thing I would like to ask chess amateurs is not to judge us, professional chess players, too harshly. We are sitting at the board, and we cannot calculate millions of moves per second. We need time, and we can make mistakes. But it does not mean that top chess players are not great chess players. It’s just that you have better instruments to analyse what they are doing. Maybe it seems to you that the aura of past players was more glamorous than today’s, but that is because you did not have a program like Fritz to show you all the loopholes in their games.

FF: So the computer can be damaging to the image of the players?

VK: That would seem to be the conclusion from the last part of our conversation. But we must see that it is generating much more enthusiasm for the game. There are many more spectators, which is a direct result of people being able to understand what is going on. This is definitely a positive development. Still, as a chess player I sometimes have a bit of nostalgia for the good old times when you could prepare for just one or two hours, and then rest and read books. You came to your games feeling fresh, because you did not have to memorise tomes of variations. This is just the nostalgia of an older chess player – I think young players don’t know this feeling and may not understand what I am talking about. But I can still remember that time, and it was very nice, in its own way.

FF: Thank you, Vladimir, for this frank and candid interview. We all wish you the best of luck.
 
"
FF: The Fritz programmers are not particularly happy to play against you. They would prefer some other players, because they consider you particularly unpleasant and difficult. Do you know why?

VK: I think it is about my style. I too believe that I might be one of the most unpleasant players against the computer. Because my style is more based on positional play, on endings – I don’t think I am betraying any secrets if I say I’m pretty good in endgames. These are elements that are the weak spots of computers. A very combinational player who relies on his calculating skills…"



NZD, that is some scary stuff, when you think about it.
A bit "terminator", you know?
 
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