A specter is haunting today’s financial markets — the specter of “algorithmic trading.”
Today, quantitative or algorithmic trading is responsible for more than half of the trading in U.S. stock markets. This development signals a fundamental shift in the character of financial trading.
It marks the rise of the importance of computers and artificial intelligence in the way the world’s most sophisticated investors make their investment decisions.
Garry Kasparov and IBMâ??s â??Deep Blue”
I recently listened to a podcast with Garry Kasparov where he discussed his new book, â??Deep Thinking: Â Where Machine Intelligence Ends and Human Creativity Begins.â?ť
Kasparov was the worldâ??s #1 chess player for over 20 years.
He is best known to the U.S. public for losing a chess match to IBMâ??s Deep Blue computer in 1997.
In the interview, Kasparov concedes that human chess players today donâ??t have a prayer against todayâ??s powerful chess computers.
Computers donâ??t get tired. They donâ??t get moody. They donâ??t make mistakes.
They are never â??off their game.â?ť
Meanwhile, a human chess player only has to screw up once to lose a match.
The same reasoning applies to trading in the financial markets.