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

Managers and engineers

[fortfive]

Vonnegut called it in what, 1955?

Re:Managers and engineers

[msauve]

Yea. Fuck them. If they want to maintain the illusion that markets (short term) are any different than Las Vegas, require all trades to be hands-on (by humans). No millisecond trades, require holding at least 5 minutes (as a start, a day or week should be the goal).. None of this automated bullshit, which just sucks profits away from investment for speculation. And, make the rules the same for all, no more fast trading for the patricians when the proles have to deal with settlement measured in days.

Re:Managers and engineers

[PopeRatzo]

Please! I am a small retail trader. I benefit substantially from the HFTs by enjoying tighter spreads, quicker fills and better closing prices.

Why don't you get a job and become one of the makers instead of one of the takers?

Re:Managers and engineers

[PopeRatzo]

By the way, what makes you think that I don't have a job? Lots of retail traders have jobs, apart from trading.

What does your trading produce for the world? If you're day-trading stocks, which I doubt, you are producing some infinitesimal amount of liquidity for the market. In other words, you're producing nothing. If you're trading derivatives, (more likely), you're just a parasite. Doing harm. A tumor on the economy.

Re:Managers and engineers

[LostMyBeaver]

Honestly, blind traders are a burden on society. What i mean by blind traders is that people who are simply running gambling algorithms and living by the "buy low sell high" rule are a curse on society. It's also what makes it so that people lose tens of thousands of jobs due to "restructuring" because algorithmic traders won't generate trade volume unless someone publishes something in the newspaper. I actually have been sickened by the disgusting concept of a trading floor for decades. It's a group of ass hats running around from buzz to buzz and buying and selling things they don't understand and ruining lives.

Laws should be passed requiring traders to have to apply for permission to make each trade. What I mean is that all traders even the small ones should have the same requirements that major share holders have. So, you should be able to buy in, but you would have to release a statement of intent to trade and wait 7 days before the transaction takes place.

There is a disgusting belief, almost like a religion that suggests that gambling on shares with absolutely no regard for how it impacts society as a whole is "Free Market" and "Democracy". Bullshit. Gambling on stocks IS NOT the same as investing in companies. What is worse is that when you gamble on stocks, you believe you have the right to demand a company behaves in any way it takes to increase the value of those stocks to make you a profit. That's filth. It causes shitbacks at major companies to lay off 20% of their workforce and outsource to India because it will generate the buzz which will cause trading volumes to skyrocket. And if the direction is up, people will rake it in, if it's down, they'll short the hell out of it. And yet, you just killed a city and can't even tell me what the company actually does.

I will shit all over HFT and algorithmic trading because it legitimizes shitting all over millions of peoples lives without even having the first idea what company you're actually effecting. The stock market isn't like a casino. If you win or lose in a casino, only the casino and a small number of people may be impacted. When you treat wall street as a casino where you are allowed to count cards, you and your peers can actually destroy the financial health of entire cities. A program with a bug could collapse an entire company within a few seconds destroying lives.

Yes, I know there are upsides to trading as well. It gives legitimate investors a way to abandon sinking ships for example. This gives legitimate investors a better reason to make the investment when it's needed. But the downsides far outweigh the upsides.

Trading is a predatory business/career that focuses entirely on profit with absolutely no regard for the peoples lives it impacts.

Maybe trading should be restricted to only company stocks that are related to dumping trash in oceans, distributing child labor, sex trafficking and so forth. Trading requires about the same moral compass.

Re:Managers and engineers

[Anonymous Coward]

What does your trading produce for the world?

Among other less tangible things, my trading provides something very substantial and immediate to "the world" -- a stock, option or payment for the person on the other side of the trade.

You can think of it sort of like coin collecting or stamp collecting -- I'm buying and selling items and trying to do so for a profit.

If you're day-trading stocks, which I doubt, you are producing some infinitesimal amount of liquidity for the market. In other words, you're producing nothing. If you're trading derivatives, (more likely), you're just a parasite. Doing harm. A tumor on the economy.

No doubt you are a great contributor to society, but you seem to have some butthurt.

I wonder if you say the same thing to those who trade coins and stamps?

Re:Managers and engineers

[sjames]

It could be argued that if abandoning ship is harder, investors will become more interested in the long term well being of the ship and less interested in short term stock value plays that will crash the company in the long term.

Re:Managers and engineers

[Anonymous Coward]

This kind of emotionally-charged angry rhetoric isn't constructive. Moreover it's disconnected from reality. It's someone thumping their fists on the table, demanding strongly that something is "wrong" in their eyes and trying to elevate that to some kind of moral imperative. Chest-thumping and loudly proclaiming you'll "shit all over" doesn't sound to me like a strong intellectual argument grounded in fact. Quite how it got rated "insightful" is beyond me.

I'm sorry but life is more complex than your one-sided view of things presented here.

Companies collude with markets because those in charge gain financially from doing so. But then so do employees who take stock options. Banks have a vested interest to make more money to be able to loan more in order to make yet more money. This may come as a shock to you but that money also then creates jobs and improves lives and living standards as well. It is not a universally negative activity. Unlike the clear view from on top of your moral highground, it becomes difficult in reality to separate "investment" from "gambling" - there is efficiency to be had in execution through algorithms. Which, oddly, all investors want because nobody wants to pay over the odds. How do you provide liquidity in a market or move positions efficiently if we cannot trade without x days notice? Oh and who gets to give that permission, you? Surely that'd be a much less corruption prone system (haha)? Your solution to most of this seems to be to ban everything. What, Capitalism as well, presumably?

I find your rationalization and minimization of Las Vegas-style casinos truly bizarre. It seems some forms of gambling that destroy lives is fine by you - because it only affects a small number of people but this larger "gambling" as you perceive it, is not. So the moral outrage of an activity is proportional to what the impact of it is in your eyes? So it's morally acceptable for someone to drive recklessly on the freeway because they're only affecting a few people?

Another irony you might find amusing - there are "ethical" funds out that don't invest in "dumping trash in oceans, distributing child labor, sex trafficking" (I'm not sure which S&P500 companies do that last one on your list though) - but guess what? They make much poorer returns than funds who have no such restrictions. So are we therefore morally bankrupt as a society to not invest in those companies? What about tobacco? Defence companies (there's an interesting one) - who gets to decide? You and your friends up in ivory towers? An "expert" who's dedicated their life to understanding one company? How does that work? I'll give you a hint to the answer: it doesn't, which is why the system exists as it does today - chaos, inconsistencies, injustices and all - alongside growth and prosperity.

Re:Managers and engineers

[monkeyxpress]

I wonder if you say the same thing to those who trade coins and stamps?

What about tulips?

There is a fuzzy line between trading that is useful, and that which becomes speculation. If it were so clear as to where that line was, we would never have an asset bubble again. I would suggest that when the financial industry is apparently producing record levels of 'value', while most western economies are no longer able to produce enough housing and infrastructure to sustain the middle class, that the real 'value' to humanity of much of that financial activity is rather overstated.

Things are bad right now

[Okian Warrior]

why we tolerate these people? I just realized I can't afford a house because of how the mathematics of mortgages work.

Such it up you clueless millennial whiner. You understand nothing, nothing at all.
Want to pay more principal early on in your loan? Just [...]

Many people will say your problems are due to your own personal choices.

They are not.

Certainly there's a certain group of people who make bad choices and ruin their lives, or who can't seem to get ahead.

But there's another group of people, who we used to call the "middle class", who make intelligent choices but who are on the brink of poverty, or falling into poverty, or generally having a tough time getting ahead.

We see articles here about the rising cost of education, and the answer is always "some people don't need higher education". We see articles about how few jobs there are, and the answer is always "move to where the jobs are". We see articles about outsourcing, and the opinions are "you lose your job, but the population benefits overall due to lowered costs".

We are gutting the middle class in this country, have been for about 20 years, and the overall sentiment is "expect less out of life". Don't expect to own a house, don't expect to send your kids to college, don't expect to live as long, don't expect to get paid more, don't expect to be able to pay your medical bills...

...and on and on.

You're ahead of the curve by actually doing the calculations and trying to predict your finances - a lot of people up to 2009 didn't do that, and thought that they could have the same opportunities as people had in the 1980's.

There's lots of people who think everything's fine and will try to pin this back on you, but it's most likely not anything you did.

Don't listen to them.

Things are bad right now, and whether they will get better remains to be seen.

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

[swb]

I'd be more impressed if they were putting their AIs to work on macro economics and equity fundamentals analysis and coming up with 3-5 year buy and hold strategies that aligned a company's fundamentals with macro economics to figure out growth patterns.

It seems like a racing team that's given all the money to the guys that get the car down the first straightaway .01 seconds faster than anyone else and forgotten about racing the rest of the track.