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Business / Finance

Claudia, come on! themes of the day 19.06.2017 at 21:00

Banking and financial news on the website

Automation and digitalization of investments is of course a fashionable topic. But does it benefit the customers, investors? Help the robotics and algorithmic trading on the stock market, that is trade based not on human decisions but rather on mathematical algorithms to earn more?

Computers instead of traders

the History of this model is developing very quickly. The market regulator of USA (SEC) gave the first impetus to the development of algorithmic trading — it helped to increase competition between platforms in the US in the late 90-ies of the last century. Advanced traders saw prices at different sites are different and this difference can make money with minimal risk. Such strategies are called arbitrage, which was most profitable to make with the help of computer programs. The new approach has led to the increase in the speed of execution to reduce the difference in price on the exchanges, and finally to mass move of investors to the banks algorithmic trading.

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a New approach eventually led to the replacement of traders and brokers in the investment company high-speed computers. Algorithmic systems have obvious advantages, the main of which is high speed when processing large amounts of information, transactions and trading decisions.

the Incredible interest in trading robots has led to an increase in trading volumes. Now about 3/4 of the revs on the American platforms is made without human intervention. On the derivatives market of the Moscow exchange indices sought to the 50% of the turnover of the auction.

has Pushed the development of algorithmic trading technological development and regulators, but also of the exchange. The latter was interested in additional income, and the regulator — to increase the size of the controlled market. In Russia algorithmic traders publicly earned a four-digit yield for the three-month yield Western algorithmic funds were in double digits, and often exceeds 50% per year.

colorful figures of the winners of the new era — the founders of hedge funds, which use algorithmic systems — list members Forbes Kenneth Griffin, founder of Citadel Investment Group, has reached a state in $ 8 billion, and James Simons of Renaissance Technologies investment group, whose assets are estimated at 18 billion dollars.

Flash Crash and its consequences

But such rapid growth could not without mistakes and failures. It became clear after the famous half-hour of the collapse of quotations at the American session on may 6, 2010, called the Flash Crash. During this incident, the Dow Jones fell by 8.6% due to identical actions, algorithmic systems — the mass closing of positions against the background of falling of the market. The result — the price of some stocks dropped to zero, and in absolute terms, the U.S. market lost over 1 trillion dollars. But then quickly recovered.

this development has forced regulators around the world (primarily in the US) to pay attention to the algorithmic trading.

the Americans did not want to lose revenue, turnover and new traders. The securities Commission of USA (SEC) has created a unit that identificeret trading robots and monitors the risks of their work (even asked to reveal their trading strategies).

the response to the Flash Crash has also been the emergence of multi-level mechanism of the stop in trading, which is not allowed to re-collapse of the American indexes.

robots in 2009 drew attention to the urgent market of the Moscow exchange. Their participation was to affect the load on the exchange, about hundreds of players have provided up to 80-85% of the applications on the futures market. However, their transactions accounted for 95% of the total load on the infrastructure. With increasing load has decided to fight financial methods were introduced and an additional fee (for each claim above the limit per session — 0,1 ruble).

Subsequently, the gathering was introduced in the stock market. The exchange also received the option to disable too active (or expelling incorrect applications) of robotics.

however, if the approach of the Russian and American regulators looked reasonable, the methods adopted in Asian countries and Australia, can be called "draconian," and not attempts to understand the structure of algorithmic trading.

the Australian Commission of securities and investments (ASIC) conducted extensive investigation of unfair trading in the futures market, openly described the impact of high frequency trading in the market as "illegal" and pointed to his "predatory" nature.

However, particularly in the regulation of trading robots have succeeded China, which in 2015 had to contain the fall of the stock market. The Chinese regulator has limited the number of positions on trading instruments increased exchange and promised to set a limit on algorithmic trades to foreign traders. In a burst of activity, several employees of the Chinese trading companies representing foreign players, and all were in jail. Naturally, this has reduced the liquidity and earnings of this business in China.

But whether such actions? The Americans chose another way — to understand the structure of algorithmic trading, has introduced the monitoring system in detecting unfair transactions, and banned a number of questionable transactions (front running – in fact, insider trading ahead of Fund operations and several types of manipulation quotes – spoofing, layering, etc.). In a similar way they did in the UK, Germany and planning in Russia.

Why is it important to understand? As a result, accurate regulation of the SEC retained algotraders American market in 2015, ahead of China and once again became the first stock market in the world.

Algorithmic trading – as with any model work with securities does not guarantee the absence of losses or high returns. It's a risk for the investor. But this is the most efficient model, technology development is at an exponential rate. This model is the future.

Michael KHAN, managing Director of investment company "Nord-Capital",

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