Nerds on Wall Street: Math, Machines, and Wired Markets

3.6. Job Insecurity for Traders

There is no shortage of paycheck anxiety among traders. Their numbers have been dropping. IBM's consulting arm published a report called "The Trader Is Dead, Long Live the Trader."^[] A Finextra headline, "City [of London] Trading Jobs to Fall by 90% as Banks Take Up Algorithmic Technology,"^[] no doubt contributed to trader stress. Even the Economist magazine, in a story headlined "The March of the Robo-Traders," observed that "programs that buy and sell shares are becoming ever more sophisticated. Might they replace human traders?"^[] Like global warming, this is a reality that can't be ignored. Gawronski comments, "Specialist firms have been cutting staff at an extremely rapid rate—30 percent here, 50 percent there—which is no surprise considering keystrokes are down more than 50 percent, I believe, and algos are being employed to do some of the routine heavy lifting of market making."

This kind of press makes for anxious career planning. Some traders have already been replaced by algorithms, and some more will be. The traders who stay will be the ones who play well with machines. Understanding algorithms is a survival skill. Someone makes the decisions algorithms can't make (yet). Here is a CliffsNotes study guide for Algo Trading 101 from a technology perspective, annotated along the way with features from algorithms at the edge.

Algorithms have sensors and effectors, analogous to the eyes and motors of real robots. In between the sensors and ...