If you’re a trader who’s fearful that your entire species will be displaced by intelligent algorithms, don’t be. Daniel Ciment of J.P. Morgan says it won’t happen, and Ciment should know.
Ciment is J.P. Morgan’s global head of electronic equities trading. His division pioneered LOXM, the self-teaching trading algorithm whose ability to learn from the past enables it to execute large, complicated equities trades without moving markets. When news of LOXM’s existence was first revealed by the FT, its designer David Fellah suggested it could be ominous for humans on the same turf. “Such customisation was previously implemented by humans, but now the AI machine is able to do it on a much larger and more efficient scale,” Fellah said.
Ciment, however, suggests that for traders as a whole there’s no need to panic. In the last of J.P. Morgan’s series of videos on the use of technology and artificial intelligence in banking, Ciment says the popularisation of intelligent algorithms in trading can be compared to the arrival of the internet for travel agents or modern telecommunications for switchboard operators. Whereas traditional travel agents and switchboard operators disappeared, jobs in both sectors proliferated. There are more jobs today than there used to be, they’re just different.
While individual traders might still disappear (particularly if they specialize in placing complex trades without moving markets), Ciment says AI could give traders as a breed a boost. The survivors will work alongside the new algorithms to get the best execution for clients. It’s becoming very important for traders to know how to use the new tools, he adds.
Ciment doesn’t divulge exactly how LOXM works. In a broad-brush overview, he says artificial intelligence is the next phase of a trading revolution which until recently was focused on speed of execution. Now that speed is ubiquitous, he says the future is about having the best self-teaching algorithms that can learn from billions of past transactions to achieve best execution. In the same way that Google is introducing AI to the search process to help predict what individual users are looking for, Ciment says machine learning should soon be able to personalize execution for particular clients: “Machine learning algorithms will know that they see this type of trading from this type of client and that type of trading from that type client. They will adapt from client to client,” he says.
Ciment reiterates earlier claims that J.P. Morgan is years ahead of rival banks when it comes to the use of machine learning in trading. Whereas banks can improve the speed of their execution quickly simply by investing in hardware and infrastructure, he says intelligent algorithms take a long time to develop. “The industry is starting to wake up to this…J.P. Morgan was lucky enough to this process two years ago.”
Addendum: We’re informed that you can see how LOXM works here….
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