Trading places

We’ve come a long way since the days of Eddie Murphy in the movie Trading Places shouting “buy frozen orange juice” down the line to his trader on the stock exchange floor; things are clearly far more automated these days. Actually, I used to work in one of those Regus offices in London’s City area that had lots of little five-man companies beavering away making millions - and I would often look in on the financial whiz-kids tapping away at their funky three-screen terminals using what I guessed were analytical models to let them know when to “buy pork bellies”… and the like.

With these thoughts in mind I took a passing interest this weekend in some news left over in my inbox from a company called TIBCO Software who has sold its low latency-messaging platform to UniCredit Group's Banking Division to “underpin” its European Index Arbitrage Trading business. Now, I’m no financial expert and I need a calculator to work out the football scores – but apparently, the trick these days is to maximise the effectiveness of your trading algorithms and strategies by maximising the speed with which systems receive prices and related data from the markets.

Here’s the official blurb –

Employing complex high frequency trading strategies, the European Index Arbitrage Trading Group takes advantage of temporary discrepancies between the prices of securities comprising an index and the price of a futures contract on that index. Tibco’s Rendezvous product has been implemented for low latency and scalable distribution of market and pricing data between the program trading systems underpinning the business’ strategy.

I have to admit, it makes me wonder why we need the trader now in the first place. If algorithmic power exists as we know it does – why can’t we simply point our systems at the stock market and sit back and have a cigar? Perhaps there is, a need for human intuition after all.

Phew! That’s a relief.