Goldman Sachs Automated Trading Replaces 600 Traders With 200 Engineers (technologyreview.com)

Goldman Sach's New York headquarters has replaced 600 of its traders with 200 computer engineers over the last two decades or so, thanks to automated trading programs. (Though, the effort to do so has accelerated over the past five years.) "Marty Chavez, the company's deputy chief financial officer and former chief information officer, explained all this to attendees at a symposium on computer's impact on economic activity held by Harvard's Institute for Applied Computational Science last month," reports MIT Technology Review. From their report: The experience of its New York traders is just one early example of a transformation of Goldman Sachs, and increasingly other Wall Street firms, that began with the rise in computerized trading, but has accelerated over the past five years, moving into more fields of finance that humans once dominated. Chavez, who will become chief financial officer in April, says areas of trading like currencies and even parts of business lines like investment banking are moving in the same automated direction that equities have already traveled. Today, nearly 45 percent of trading is done electronically, according to Coalition, a U.K. firm that tracks the industry. In addition to back-office clerical workers, on Wall Street machines are replacing a lot of highly paid people, too. Complex trading algorithms, some with machine-learning capabilities, first replaced trades where the price of what's being sold was easy to determine on the market, including the stocks traded by Goldman's old 600. Now areas of trading like currencies and futures, which are not traded on a stock exchange like the New York Stock Exchange but rather have prices that fluctuate, are coming in for more automation as well. To execute these trades, algorithms are being designed to emulate as closely as possible what a human trader would do, explains Coalition's Shahani. Goldman Sachs has already begun to automate currency trading, and has found consistently that four traders can be replaced by one computer engineer, Chavez said at the Harvard conference. Some 9,000 people, about one-third of Goldman's staff, are computer engineers.

Comments

Re:Yes, that's why they bought Hull Trading.

[ShanghaiBill]

The occasional market "crash" attributed to automated electronic trading ...

Some crashes have been attributed to automated trading, but later analysis has found that (so far) no crashes were caused primarily by automatic trading. In fact, the "flash crash" of 2010 was exacerbated by loss of liquidity as automatic traders pulled out because volatility exceeded parameters.

Humans panic. Computers don't.

So tell me again

[rsilvergun]

why we tolerate these people? I just realized I can't afford a house because of how the mathematics of mortgages work. I never bothered to do the math since I never thought I could buy one. After 10 years of paying down debt and saving I thought I was ready. Not so much. The way mortgage math works out you're paying almost all interest for the first 15 years of a 30 year loan ( stretched to 30 years since these bastards took 20% from me). Then I need extra insurance since the 2008 crash & a couple family illnesses (thanks private medical system) wiped out my savings. And I need home owners. And I have to pay HOA fees because we cut so much funding outside of rich neighborhoods there's no money to cut weeds and fix roads. It all kept adding up until I realized it'd be more than I could afford what with a kid in college and the real reason it costs $100k to go to college.

Not just all the cost, but all the _risk_ is on the home owner. The banks make sure they get their interest up front. And they take my tax dollars to guarantee the loans and hold the entire f'n country hostage if we don't pay.

Every last one of us except 1% is getting screwed by this. Why the hell do we tolerate it? Why don't we force the banks profits _down_ and our standard of living _up_? Why is the free market so much more God Damned important that we'd throw our lives away chasing Any Rand's ghost? Fuck.

Re:So tell me again

[Anonymous Coward]

Just wanted to pop in and be the opposite of your statistic....

Born in a 600sq/ft apartment. Mom made $3.xx an hour and dad made $4.50/hr in the late 80s.
6yrs old, got a sub $100 V-Tech computer as a gift for a birthday. It had a BASIC mode... Toyed with it.

15yrs, $5.15/hr de-tasseling corn fields since I grew up in a Rural area. Toyed with Linux and Coding in spare time.
16yrs, $6.50/hr working as a cashier. Admired the unix terminals though when we got to reboot them. (Sears)
17yrs, working every day after school building computers at the one computer shop in town, $8.00/hr, but coding more at home.
Didn't go to college.
Started going to conferences such as Defcon, HOPE, and local events using saved up change... Slept on the floor to keep it cheap.

18yrs, $60,000/yr as a contractor in a far away state. Friend from a conference was impressed with my knowledge and brought me on.
21yrs, $70K
23yrs, $90K
25yrs, $100K
28yrs, $240K (moved to the damn big city)
29yrs, Moved away from big city... $165K day job & supplemental LLC whenever spare change is needed.

Upwards mobility seems to always find the kind of people that have passion and are willing to execute on that passion. I literally had the chance to give a friend a $30/hr job with no experience and all he had to do was come meet our CEO. First excuse was a grandma died, then a week later an uncle died.... Then I think he forgot and a few weeks later told us a grandma died again.... I literally couldn't *GIVE* him a job and that was in the same city he already lived in.... Yet when I was offered the same in a far away state over 15hrs from home I simply sold all my belongings and left ASAP.

Similar to the concept that luck favors the prepared, I'd offer up a counter argument that upward mobility favors the motivated & passionate. I don't even have a diploma or any degree. I just have more passion and that eventually turns to skill which people then pay top dollar for.

So please save it. My mom still makes minimum wage in 2017 whilst I make her yearly salary in about 3 weeks. She has a college education and I don't. Figure that.

H1B, the Future of the "American" Workforce

[14erCleaner]

Goldman Sachs has also filed over 2900 applications for H1B visas in the past three years. I suspect this isn't for traders.

Re:Managers and engineers

[pscottdv]

HFTers always harp on the liquidity thing. News flash, while liquidity is important, it's not the purpose of the market. Equal access is much more important.

And HFTers absolutely grab profits from everyone else making trades. On the average, HFT makes money. It doesn't make it by finding a customer or building a product, therefore it must come from other traders, Q.E.D.

It's like I'm in the supermarket reaching for an orange and some guy swoops in and buys all the oranges in the store and all the neighboring stores as well and then offers to sell me my orange for a penny more than the prices on shelf. "But," he cries helpfully, "I did you a favor because you can choose from three times as many oranges now!" I just wanted my damn orange for the listed price.