False narratives in financial markets are catching, and they’re only proved wrong through catastrophic events that challenge the accepted theory. The events need to be catastrophic, because once they’re universally adopted people tend to ignore contradictory evidence.
2015 was all about a prediction that stems from the 1990s film Terminator 2 – the Skynet myth, or the fear that machines are taking over.
Guiding this theory is the notion that financial market integrity, efficiency and performance will be improved by replacing human beings with computers and algorithms. Some suggest Wall Street will be “ruled by machines” and banks need to adopt a fully digital strategy now to adapt to an inevitable change.
One thing is clear – traders, salespeople, portfolio managers and brokers are faced with the challenge of being marginalized or eliminated. The robots are coming, and they want your job.
But here’s something people rarely consider – too much automation can hurt financial market economy. This is rarely considered, despite the evidence we have seen from the most technological advanced markets – equities, FX and futures.
The cheerleaders for technology in developing markets tend to ignore the fact that automated market systems create a “culture of deception” through speed, anonymity and algorithms. The reality is that financial markets that replace humans with machines evolve into market systems that are no longer visible to the human eye, where participants feel no sense of obligation to each other.
Ultimately, these ‘evolved’ markets are fragile and display severe bouts of unpredictable volatility that we are only now beginning to understand. The 2010 Flash Crash is one example of how this can occur.
For those in the financial services industry, the hype around fintech can be paralyzing because the path to innovation is unknown. The question most have right now is simple – will I benefit from progress, or will my job be wiped out altogether.
The good news is, despite popular opinion, everything is NOT going ‘electronic’ in finance. In spite of the benefits of technology, some of the best solutions come in the form of living, breathing human beings that can add unique value. The key to your survival is to understand whether your career is on a path to elimination.
As a financial markets professional, the first step to survive innovation is to know the limitations of technology in financial markets. A helpful tool is to leverage the history of financial market evolution as a guideline.
In general, as markets have evolved, technology has been most useful for improving process efficiency. Jobs that are process related (repetitive, highly structured, uniform) are most susceptible to digital solutions that eliminate human jobs.
Most people think that “process-related” jobs in finance are strictly middle and back office roles that deal with post trade workflow. In reality, many of the once lucrative sales, trading and brokering jobs have been process-like for some time. Currently, many of these jobs are now extremely vulnerable to elimination through innovation.
The second step to survive innovation is honesty.
You must be honest with yourself about the nature of your current seat and whether or not you add value. Are you a sales person that is simply relaying information and not developing unique trade ideas? Are you a trader that is simply monitoring the workflow of a machine and not utilizing fundamental market analysis (Hi CDX traders!)? In my career, I’ve found the people most resistant to change have been those that knew the answer and did not want to face the consequences.
The Skynet myth is only a myth for those who add value beyond a simple process. Now more than ever, managing a successful career in finance means consistently building your skillset so that your contribution remains uniquely valuable. In your own personal Terminator movie, don’t let the machines win.
William R. Valentine (a pseudonym) has worked in financial markets for over 20 years with roles at several leading financial institutions. His career includes sales, trading and platform building in both equity and fixed income markets.