Sunday, October 01, 2006

Algorithmic Trading vs. Program Trading vs. Portfolio Insurance

Shades of 1987. The computers will make everything ok.

In 1987 the computers protected everyone's accounts with portfolio insurance. We were of course highly sophisticated and nothing could go wrong - go wron -go wro

Latter with LTCM we had Nobel prize winning financial wizards setting the programs.

When LTCM blew up all the kings horses and all the kings men created the huge bubbles we have been popping recently trying to convince the world that Humpty Dumpty was ok.

Here is a recent juicy piece from Yahoo News about an IBM report:

A report launched today by IBM suggests that nine out of ten traders employed in the City of London will have lost their jobs by 2015 as all-electronic “algorithmic trading” is adopted by their employers.

Algorithmic trading is carried out by computers largely unsupervised by human beings and reacting automatically within a split-second to price movements. It is one factor that has sent volumes on all world exchanges rising dramatically in recent years.

Nevertheless, London will continue to be a key international financial centre, IBM concludes.

We are of course very sophisticated today, and even though the programmers may not be Nobel prize award winners, we are sure nothing will go wrong -


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