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The latest issue of Wired has an interesting article about a 29 year old mathematician who is using crowd sourced machine learning to manage hedge funds.
Richard Craib is a 29-year-old South African who runs a hedge fund in San Francisco. Or rather, he doesn't run it. He leaves that to an artificially intelligent system built by several thousand data scientists whose names he doesn't know.
Under the banner of a startup called Numerai, Craib and his team have built technology that masks the fund's trading data before sharing it with a vast community of anonymous data scientists. Using a method similar to homomorphic encryption, this tech works to ensure that the scientists can't see the details of the company's proprietary trades, but also organizes the data so that these scientists can build machine learning models that analyze it and, in theory, learn better ways of trading financial securities.
"We give away all our data," says Craib, who studied mathematics at Cornell University in New York before going to work for an asset management firm in South Africa. "But we convert it into this abstract form where people can build machine learning models for the data without really knowing what they're doing."
He doesn't know these data scientists because he recruits them online and pays them for their trouble in a digital currency that can preserve anonymity. "Anyone can submit predictions back to us," he says. "If they work, we pay them in bitcoin."
So, to sum up: They aren't privy to his data. He isn't privy to them. And because they work from encrypted data, they can't use their machine learning models on other data—and neither can he. But Craib believes the blind can lead the blind to a better hedge fund.
(Score: 2) by fritsd on Sunday December 18 2016, @09:32PM
Well, I thought there was a problem that the collective decisions of short term speculators could sometimes cause large fluctuations in the stock market (even though statistically you'd think their actions would even out).
This was not a problem in the 1990s because high-frequency trading didn't exist then.
And I read that the algorithmic traders build their offices as close as possible to the physical stock market computer systems, so that their network latency is minimized.
And I read that in the 2010 Flash Crash [wikipedia.org], which occured in the timespan of 36 minutes,
, and
and we're now entering a time of even greater uncertainty in the EU and elsewhere, and with the Brexit the City of London traders will have to invent new plans to Make Money Fast(TM), decoupled from the boring euro banks, so I'd hope that the financial institutions from the EU could somehow construct some kind of flash crash lightning rod Tobin Tax, even though that would make them less competitive in the world of flashy "here today, gone tomorrow" trading.
There would still be room in the world economy for banks that are slightly more expensive and more boring than the hottest, brilliantly bright lightning traders of London and New York. I think. So I agree with your last paragraph that this "EU silliness" would surely cost the EU companies, and would be an incentive for eager EU banks to move to buccaneer London.
The lightning will strike again, guaranteed. But we can't know where and when. Therefore protection has to be generic and in place, and not at the last 250 millisecond human decision to pull the plug out of a computer system (6 may 2010, 2:45:28 p.m. according to the Wiki article. for 5 seconds.).
Granted I only worked at a very low level as a programmer at banks and pensionfunds, so what do I know.
(Score: 2, Informative) by khallow on Monday December 19 2016, @08:50AM
Well, I thought there was a problem that the collective decisions of short term speculators could sometimes cause large fluctuations in the stock market (even though statistically you'd think their actions would even out).
This was not a problem in the 1990s because high-frequency trading didn't exist then.
And I read that the algorithmic traders build their offices as close as possible to the physical stock market computer systems, so that their network latency is minimized.
And I read that in the 2010 Flash Crash, which occured in the timespan of 36 minutes,
The thing is the disease is the cure. If someone is repeatedly causing flash crashes or large fluctuations, they'll eventually run out of money and that's that.
As to your claim that this never happened before, we have Black Monday [wikipedia.org]. The timeline is instructive [wikipedia.org]. A crash still happened despite it occurring on a long enough time frame that humans could react to it. But even in that case, it takes a while to muster large amounts of fluid assets. Supposedly, there was a point where one could have earned 20% over about 24 hours on arbitrage (risk-free trade) which indicates the parties interested had exhausted their means to purchase such things over the relevant period of time.
and we're now entering a time of even greater uncertainty in the EU and elsewhere, and with the Brexit the City of London traders will have to invent new plans to Make Money Fast(TM), decoupled from the boring euro banks, so I'd hope that the financial institutions from the EU could somehow construct some kind of flash crash lightning rod Tobin Tax, even though that would make them less competitive in the world of flashy "here today, gone tomorrow" trading.
Traders != banks. Banks can have traders, but traders can come from a lot of different businesses or even be self-employed as your "36-year-old small-time trader". I think the competitive hit will be bigger than you expect with wider spreads and low volume. Second, all that flashy stuff is a magnet for speculators and market makers. That's profit opportunity that won't be present in the boring market.
The lightning will strike again, guaranteed. But we can't know where and when. Therefore protection has to be generic and in place, and not at the last 250 millisecond human decision to pull the plug out of a computer system (6 may 2010, 2:45:28 p.m. according to the Wiki article. for 5 seconds.).
Or we can just not do anything about it and the problem fixes itself. It's not like Apple is going to stay at $100k and Accenture at a penny forever just because there was a weird market fluctuation. If the stock markets made a habit of never rolling this crap back, it would stop in short order through a combination of the perpetrators losing their shirts and other market participants becoming more proficient in responding to such things.