In February 2018, the American stock market Dow Jones had the steepest downfall of 1000 points which was considered to be one of the worst one-day falls in recent years. Many human traders are blaming the automated trading systems for this loss. This loss is developing trust issues among the traders whether or not to trust the machine trading systems.
Automated trading systems, also known as mechanical trading systems or algorithmic trading systems utilize a supercomputer to perform complex and advanced mathematical calculations to make quick decisions and transactions in the financial markets. According to experts, as of 2018, algorithmic trading constituted more than 50 percent of the total in the cash and derivatives segments in India. The equivalent ratio in developed markets like the US and UK is more than 85 percent. Today almost 60 percent of trading activities with different assets are not done by human traders but by machines.
Unlike humans, automated trading systems make decisions that lack emotions, hence trading with them is logic based. They have a disciplined approach to their trading and backtesting is possible allowing traders to fine-tune trading ideas for further strategies. All these efforts help to achieve consistency in trading and achieve profits for the users. With very few shortcomings these systems are gaining popularity among the human traders.
Charles Himmelberg, Goldman Sachs’ co-head of global markets research, says that the age of machines has just begun. According to him, soon the machines will replace the humans and speed will replace capital. With the advancement of Artificial Intelligence and its more involvement in machine trading, Himmelberg says that the day would soon arrive when machine trader will be better than the typical human trader. With more surprises yet to come from the machine traders, the future is what every human trader is looking up to with hopes.