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

[Pascoea]

HFT doesn't "suck profits away" from the "buy and hold" traders. The HFTs are making profits off of one or two ticks of movement, while the "buy & holders" are sitting-out movement of tens/hundreds of handles.

Did you intend to copy the script from Office Space while describing this process, or was that an accident? Because you did

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

[0100010001010011]

Trades should be taxed on a decay function of how long they're held.

Hold it for 10 milliseconds? 99.9% tax.

Hold it for 10 days? 25% tax.

Hold it for 10 years? Nearly no tax.

Re:Managers and engineers

[publiclurker]

you mean let you try to sell us a bunch of bull because you happen to make a quick buck off of it, don't you?

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.

Re:Managers and engineers

[Pascoea]

it only affects the price by one or two ticks.

You're right, I don't know the intricacies of how it works, and I had to google what a tick was. But that comment right there proves my point. That comment basically means "It only affects the price by a little bit", considering the value of a tick is some fraction of dollar. According to a 30 second reading of this anyway: "For example, the E-mini S&P 500 futures contract has a designated tick size of $0.25 while gold futures have a tick size of $0.10." So you are agreeing that involving a HFT between an actual buyer and an actual seller has an effect on the price, it may not be much, but it has an effect.

In addition, those one or two HFT ticks can be down or the move can be up

I'm sure they can go up or down, but the HFTs wouldn't be operating if that tick movement wasn't in their favor the majority of the time. I'm no economics major, but I'm smart enough to figure out they wouldn't be doing it if they weren't making money.

HFT trading phenomenally enhances liquidity,

This is where I get fuzzy, it doesn't make sense to me. If I'm placing an order to buy, in order for the transaction to go through there has to be someone willing to sell within the range I'm wiling to buy. Adding an HFT to the mix can't magically create that person willing to sell for what I'm willing to pay. They aren't acting as a necessary middleman, they are just buying what I want to buy before I am able to do so, and selling it to me for "one or two ticks" more than I could have bought it from the seller to begin with.

So what I'm gathering from your comments, is that Peter Gibbons is pretty accurate in his description. "Well those are whole pennies, right? I'm just talking about fractions of a penny here. But we do it from a much bigger tray and we do it a couple a million times."

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.

Yes, that's why they bought Hull Trading.

[mmell]

Clear back in the twentieth century (the early nineties, IIRC), Goldman-Sachs could see that electronic trading by automated systems, especially wholly automatic trading based on rules and AI systems were more effective and more profitable and so bought Hull Trading. Hull's contribution to the art was the recognition that if his computers could recognize and act on a change in stock prices faster than the other guys', his computers could trade with a guaranteed profit on every transaction (by buying below and selling above the current market price). No need to know which stocks were going to take off or tank - just a system built to respond faster to those events. The occasional market "crash" attributed to automated electronic trading such as this were largely moderated by the market's built-in control mechanisms, which include shutting down such trading if certain criteria occur.

In short, no need to know what the market is going to do, just a need to know what it is doing right now. Profit not based on picking the right stock but by the fact that stock prices are not constant. As I used to think of it, not making money off the stocks but off of the changes in stock prices. A guaranteed winner. Genius!

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.

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.

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

[humptheElephant]

Yes, and now the US is not fixing our infrastructure. It will eventually pay the price. But the billionaires who now run the country will not care. They can sit in the guarded estates, use their aircraft, boats and other do-dads and ignore the rest of society that they raped. They take their money and stash it overseas so they don't pay taxes. They have made their profits on the backs of the middle class and lower paid workers. Most of them are parasites on society and society can't afford them anymore.

Hookers and blow?

[easyTree]

According to https://www.theguardian.com/business/2009/nov/18/goldman-sachs-blankfein-sorry,

"The world's most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money,"

.

Who knows what sophisticated and perfectly-executed levels of depravity might be perpetrated by Golden Sox' robot traders? Hookers and blow may well be involved but not in a fun Benderesque sense.

Engineers, eh?

[Frosty Piss]

Sooooo.... Russians or Indians?

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.

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.

Computers do so panic.

[mmell]

Kernel panic - task held.

Hit F1 to continue . . .

Goldman Sachs 600 Traders

[jaminJay]

Alternative title: "Goldman Sachs 600 Traders"

The UBS war room

[Neo-Rio-101]

https://contrarian.live/2016/0...

Pictures tell a thousand words.

But who are we kidding about financial markets anyway. Like in a casino, the house always wins.

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:But can they teach them to insider trade

[Enigma2175]

And when that business dries up they will just go back to selling securities it knows are toxic to its customers and then selling those securities short so they profit when their customer loses. Now with the new fiduciary rule (which would require financial advisors for your retirement accounts to put your interests ahead of their profit) being "reviewed" before it can even go into effect and many former Goldman Sachs employees in senior cabinet positions expect more of the same, investment banks fleecing their customers, other investors and taxpayers for every cent they can.

Re:Ok, now tell me where I get that money

[Anonymous Coward]

after a) a large scale economic crash caused by deregulation b) several medical problems outside my control (other family members).

The places without HOAs are slums thanks to white flight. We abandon the inner cities and let them all go to shit. The HOAs don't just do that. They maintain a ton of crap that used to be maintained with tax dollars. Again, if I want things that everybody used to take for granted I need to live in ridiculously expensive places. Anything affordable is a hell hole by design.

And read my f'n post you damned troll. I'm bitching _because_ I understand the terms of the mortgage. I understand that I'm paying the interest up front so that the bank gets all of the profit and none of the risk. I pay interest up front because the longer I'm in the house the better the odds my life'll go to shit again when somebody gets sick or my job gets offshored or whatever disaster strikes next. Interest is suppose to be the profit a bank makes for risk. Why the hell are they getting so much damned profit for zero fucking risk?

You say you understand loan amortization but you really do not. It has nothing to do with "up front profit for risk".

I have a $457,000 30 year mortgage at 3.375% fixed. It was a zero point loan with low closing costs.
The monthly payment includes $752 principal and $1287 interest. The interest is tax deductible to me.

This loan has multiple forms of risk:
Repayment risk - I may not repay
Interest rate risk - interest rates could climb (and probably will), but my rate is fixed for 30 years
Capital risk - the money I borrowed today will be worth a lot less in 30 years

Given the above risks would you have lent me $457,000 with a promise to repay you over the next 30 years at about $2000 a month? Would you really see that big $1287 interest as covering all your risks?

Personally I'm happy to have received this loan and I don't see why you think it is such a bad deal. I could have taken a 15 year loan but the monthly principal would have been about $1000 higher and it made more sense for me to put that money to work in the stock market.

Most mortgage lenders make their money on the loan closing, not the loan servicing. Conforming loans are offloaded to Fanny Mae as quickly as they can be. The bank does not want to tie up capital any longer than they have to.

As for the HOA/non HOA "hellhole", my real estate taxes are $1400/month. I bet that's way over whatever you are paying your HOA. The bill has to get paid somehow.

Re:But can they teach them to insider trade

[ls671]

Of course, there is a mini-USB port for that.