Automation has completely transformed trading on financial securities markets. Robots have taken over the role of human traders. These so called high frequency traders (HFTs) act very quickly based on advanced mathematical rules – algorithms - that determine the optimal trading strategy. In less than a second these robots can decide whether to buy or sell. In the time it takes our brain to even register a price, a HFT has already traded 100 times. Future technologies will even increase the action speed to microseconds. The only people who somewhat seem to understand and are able to influence the interplay between human, robot and the financial market are Quants: very smart mathematicians who create the algorithms for HFTs.
This development is accompanied by enormous risks: a computer error could take financial markets down in less than a second. Besides, these markets are very vulnerable to deception and fraud, resulting in one of the most controversial examples, the Flash Crash of May 2010.
Econometrician prof.dr. Albert Menkveld (VU) studies the architecture of the financial system and is an internationally renowned expert in the automation of the financial markets. One of his goals is to end the pointless arms race in the securities markets that is devouring millions of euros. In this lecture Albert Menkveld explains the architecture of the financial system, related technologies and its advantages and risks. He discusses the ‘ingredients’ and conditions that are necessary for a sustainable, safe and ‘healthy’ financial trading system.
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