Automation and artificial intelligence are profoundly transforming trading and markets. But proceed with caution.
Many scientists and futurists agree that the effects of artificial intelligence and automation on society are difficult to predict. Theories range from a complete and spontaneous change in society (the so-called Singularity) to more utopian outcomes.
While many predicted that the tip of the spear for such technology would play out in areas such as medicine or general computer system markets, the AI revolution is already underway in the financial markets. Many of the predicted challenges and solutions are occurring now -- in real time.
Financial technology becoming possibly the first major component of society to be completely AI enabled is not surprising if you consider that financial markets are inherently big-data intensive, attract bright minds and high-quality capital, and often have a short investment-to-profit time horizon.
Market-making firms facilitate market liquidity for buyers and sellers and provide a strong example of the automation effect. Nearly all market-making is presently dominated by machines that employ AI techniques, including advanced pattern recognition. Every trading day, numerous trading teams compete to provide the most efficient results using AI-centric techniques.
If you take a moment to process this, you realize that the prospect of AI driving critical aspects of society is not science fiction; it is here now as we have already essentially handed the "keys" to a critical component of our markets to machines.
This change did not happen overnight. It has been underway since the beginning of the new millennium. And it is not the result of a single "big-bang" design built by a single elite team. It is a system created through evolutionary steps -- a collection of many teams building various pieces of this new ecosystem where viable technologies survive and weak ones perish.
The final manifestation of this new market ecosystem will yield a number of direct and indirect opportunities. For example, we build a product called "Riskbot" that we describe as a supercomputer designed to watch supercomputers. Riskbot polices trading traffic between trading systems and exchanges -- a sort of immune system for the new market ecosystem. The rise of multi-gigabit networks and super-charged data-delivery products provide the circularity system and new mass storage, and distributed databases provide the analytical capability of the new intelligent market.