World Trends – Persistent Innovation
I recently read a big book called The Handbook of Fixed Income Securities. Its 1500 pages. The book talks about everything you need to know about Fixed Income strategies. Also, the author talks briefly about the history of the financial market and how things have evolved in the last decades. The fact is that the financial market has seen many trends which have made it the dynamic marketplace it is today. For instance, in the past, trading was only limited to trading centers such as the New York Stocks Exchange and London Stocks Exchange. Today, the market is interconnected such that it is possible for a New York based trader to trade the London exchange. Below are the five key world trends that will likely change how people trade and allocate capital.
#1 – Big Data
Big Data is a term used to mean vast amount of data that can be analysed to show patterns and trends. Actually, big data cannot be viewed as a future trend but something that is happening at present. In the past, technical traders such as Alexander Elder had to take certain data points and do analysis from them. The field of big data will change completely how people get the data and analyse it. Today, this has been achieved by the democratization of the data. In the past, some pieces of data was very proprietary and only available to large investors. This data is today freely available to traders from all over the world.
#2 – Bots will Take Over
Bots are changing how things are done especially in communication. Today, it is possible to chat with a bot which will solve your queries. In trading, the revolution of the bots has always been there. Today, traders from around the world are developing bots that either executes the trades or alerts them that certain parameters have been achieved. These bots are also known as Expert Advisors. In the past, developing bots was a complex thing because the developer needed to have some background in coding. Today, this has changed with many brokers offering a drag and drop alternative to coding. It is even possible to develop a bot within a few days and backtest it with the available tools.
#3 – Era of the Quants
Following the success of large quantitative traders such as Jim Simons (Renaissance Technologies) and Kenneth Griffin of Citadel, many traders are getting into quantitative trading. Quantitative trading enables the traders to use various data points to create models that will guide them during trading. Many traders are now taking time to learn the secrets of the quants with the aim of replicating the models. In fact, huge traders such as Citi which in the past employed thousands of people as traders have reduced this number. The same is true with JP Morgan and Morgan Stanley which have downsized their trading units. At the same time, investors have taken their funds to quants such as the two world trends mentioned above.
#4 – Artificial Intelligence
In January Wired Magazine wrote an article on the Artificial Intelligence Hedge Fund that will continue trading even after the world comes to an end. This hedge fund will contain tools that will open and close trades by analysing huge data sets. These data sets will come from diverse sources such as company sales, trends in various markets, and social media among others. Today, these tools are only available for the sophisticated and expensive traders. This will change and the technology will be available for small traders.
#5 – Rise and Rise of Robo Traders
Today, in fintech, robo traders are some of the leading world trends available. This is a situation where you deposit money to a company which will electronically allocate the funds to various assets such as equities and bonds. This field has now drawn more than 1$10 billion with companies such as Wealth Front and Betterment leading the way. In future, based on the performance of these companies and increased regulations, it is expected that most people will depend on them. There will be hiccups along the way but the future will not be controlled by humans as we know them.