Computers taking control of financial markets

It reflects a changing world. Modern markets, for example, are facing commercial warfare and low interest rates. But it also reflects changes within finances that constantly recreate themselves in a permanent struggle to gain a competitive advantage. As described in this article, the final revolution is at the highest level. Machines have taken control of investment, and not only is the purchase and sale of valuable papers, but also the control at higher levels, in that of monitoring the economy and sharing of capital.

Funds run by computers, which follow man-set rules, account for 35% of American stock markets, 60% of institutional capital assets and 60% of commercial activity. New artificial intelligence programs are specifying their own investment regulations so that people can understand them only partially. The various industries, ranging from pizza distribution to Hollywood, are being changed by technology, but the finances are unique because they can exercise the power of voting on firms, resell wealth and cause real chaos in the economy.

Because they do large sums, finances have always had money to achieve successes since early years. So for example, the first transatlantic cable, completed in 1866, connecting Liverpool with New York. Wall Street analysts devoted great importance to programmes like ecstasy since the early 1980s, and since that period computers have invaded the financial industry. One of the first processes to be executed was that of buying and selling orders. If you are to visit a commercial institution today, what you will hear will be the sound of servers rather than the noise of merchants.

High - frequency trade benefits from minor changes in the price of valuable letters, using a host of transactions. In the past decade, computers have also run wallets. Stock Investment Funds ( ETFs) and bilateral funds automatically follow stock and bond indexes. Last month, these vehicles invested $4.3 trillion in American capital, exceeding the amounts actively directed for the first time by humans.

The longer time passes, the more computers are gaining autonomy. Softwares using Artificial Intelligence are developing their strategies without the need for human guidance. Many people are skeptical about artificial intelligence, but increasing the processing power also affects its ability. And if they are to consider the flow of information through computers, it cannot be compared to the information received by fund managers, who should read reports and meet various firms based on strict rules of internal trade and information storage.

These are designed to control what is in the public domain and ensure that everyone has equal access to it. Today, almost endless data sources and processing power are creating new ways to assess investments. For example, some funds try to use satellites to track parking lots in front of retail shops and get inflation data from electronic trade sites. And therefore, they will have more up-to-date information about different firms, even more up-to-date than the management boards of these firms themselves.

So far, computer empowerment has democratised finances, reducing costs. A typical stock market fund (ETF) is taxed by 0.1%, compared to perhaps 1% of an active fund. You can even buy ETF from your phone. A continuing price struggle means that the cost of trading has fallen and markets have become more liquid than ever before. Especially when returns to most investments are as low as today's, everything becomes clearer. However, the developing age of finance dominated by machines certainly creates concerns, one of the most important is financial stability.

Experienced investors complain that computers can distort asset prices. The regulators worry that liquidity will disappear as markets fall. These claims can be overlooked because people are fully capable of causing real chaos themselves, and computers can be the ones who can help with risk management. However, incidents that have occurred are not few, and here you might mention the disorder in the 2010 ETF prices, a sharp drop in the steroid in 2016 and a decline in debt prices last December. And exactly skeptics think that with the further empowerment of computers, such incidents can become even more serious and can happen more often.

Another concern is how wealth can focus on computerized finances. Because performance relies more on processing power and data, those most influential can generate large amounts of money. Numerous investors argue that any advantage they have had can be easily competed. However, some funds are paying to secure exclusive data rights. Imagine, for example, JPMorgan Chase using her internal data on credit card flows to trade market Treasury bonds. These kinds of conflicts, currently hypothetical, can soon really happen.

A recent concern is corporate governance. For decades, company boards have been voted by fund managers on behalf of their clients. What if those shares are guided by computers that are agnostic, or worse, are programmed to pursue a certain objective such as the obligation of firms to pay a divide at any cost? Of course, people can overcome that. For example, BlackRock, the biggest ETF firm, gives firms guidelines on strategy and environmental policy. But that raises another problem: if assets are passed on to some managers of large funds with a large economy, they will have unlimited voting power over the economy.

Hey, Siri, can you invest my life's savings?

Responsibilities in finance are numerous, but they often lead to crises because they earn a lot of self - confidence. In the 18th century, stock society created bubbles before it started doing business on a large scale in the 19th century.

The broad principles of market regulation are permanent: equal treatment of all clients, equal access to information and promotion of competition. However, the computer revolution seems to make today's rules seem incredibly old. Human investors will discover and accept that they are no longer the smartest of this field.