Not surprisingly, some of the conclusions and statements within the graphic are less than rigorous in their criticism:

click for ginormous graphic

Interbank FX, Rise of the Algorithm
July 12, 2011

Category: Markets, Mathematics, Trading

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

8 Responses to “Rise of the Algorithm”

  1. SivBum says:

    Thanks for this comprehensive piece. Shocking: 11% retail trade and 17% institutional trades and 71% are HF and Hedge hogs! Little guys don’t stand a chance going against their flow.

  2. Bernie X says:


    What SHOULD those ratios be in a healthy market ?

    Based upon what data ?

  3. Orange14 says:

    Hmmm, I guess whoever dreamed up this chart has not read “When Genius Failed.” I’m still kicking myself because I didn’t buy CLX two months ago when I looked at it. I thought it was too expensive at $66/share. I wonder if THE ‘Algorithm’ would have told me differently?

  4. theexpertisin says:

    Very interesting post. I really haven’t a clue as to what an “appropriate” percentage is for any identified group. But, 71% HF and Hedge Hog action tells me something may well be amiss.

  5. SivBum says:

    Bernie X,

    Those Prop Algor program trades tend to have identical parameters and variable boundaries. They had caused flash crashes and added volatility to the market. Individuals near or in retirment are forced out of the market. Lucky for them, T-notes return better than the lost decade.

  6. Thorstein says:

    Barry, what’s your criticism?

    Maybe I can address it.

    I work on a hft market-making fx desk. Our group is supposedly the largest (measured by volume) prop-shop market-maker in fx at several exchanges. We do thousands of trades every day. I’d guess we probably trade about $8-10 billion in spot/day, which doesn’t seem huge to me, though during the Greek currency crisis (last May or June?) our volume almost tripled, which did seem huge. Since startup 6 years ago, our volume has probably tripled, but so has the volume in the FX market taken as a whole. And it looks to me like more trading (market-making) capacity could still be added, especially in the non-major currencies & products.

    I’m just a clerk, not the programmer/trader, so I don’t know how all of the algos work. But I monitor 8 hours of their market-making, so I’ve got some rough ideas about where our risks lie: the usual suspects: power-outages, network outages, bad code, counterparty default, etc.

    Where do you see the risks?

  7. zola says:

    So increasingly, these programs will be run automatically or by someone who just knows how to run the programs and if they get hacked a great deal of damage will be done before anyone clues into the fact that there’s a problem?

    Wow, that makes me feel secure.

  8. Thorstein,

    don’t sell yourself Short — w/: “…I’m just a clerk, not the programmer/trader…”

    see some of..

    and, really, there’s loads more, freely, available..

    though, obviously, there’s a Caveat — If it’s freely available…
    but, really, the structure(s) are similar — esp., if you want to come at it from “Bernie X”‘s POV..

    it isn’t, too, difficult to cull the gist (of the scene) — it, just, helps to be able to suspend *Belief …