FTSE Global Markets reported that:
New generation trading algorithms are taking on fewer characteristics of machines and more characteristics of humans. In today’s low liquidity environment being unpredictable is essential and this consideration is driving innovation and change in the way that algorithms intuit market nuances and work. However, given the increased ‘awareness’ of new algorithms in distinguishing between rational and irrational markets, new types of controls are also required. Can innovators and the sell side meet the challenge? And what’s in it for the buy side? Ruth Hughes Liley went in search of answers.
Algorithmic trading is advancing at a clip and changing rapidly in its capacity to adopt more ‘human’ approaches to trading. In other words, algorithmic trading is adopting still logical, but more unpredictable behaviour patterns. Owain Self, UBS’s global head of algorithmic trading, explains the dynamics. “There’s more and more discussion given to taking the intuitive logic of the human being in their ability to tell the difference between an irrational market situation and a rational one, and embedding this inside an algo. [However] at the end of the day, in implementing these controls we know we can never make the perfect decision every time so need to find the balance between controls and allowing clients to achieve their objective,” he says.