One of the key benefits of the use of artificial intelligence (AI) tools for trading is that it can massively enhance human capabilities, explains Andrej Rusakov, CEO of Data Capital Management.
“The way I see it is that AI can really put human ingenuity on steroids,” he says. “What I mean by that is that it really allows you to take way more data points into account and find structures in data sources that are impossible for the human eye to spot.”
Rather than displacing humans, Rusakov explains that this technology is most effective when it is deployed in tandem with a human understanding of how markets work. When building strategies, his firm uses this understanding of markets and then codifies and enhances them by using AI, and in particular machine learning, tools to find new patterns in different data sets.
Artificial intelligence (AI) and machine learning have become buzzwords in financial services, but while this technology can be applied in finance in numerous ways to improve returns, it also has some significant limitations that market participants should be aware of.
This was the message from speakers at the Profit & Loss Forex Network New York conference, on a panel discussion titled “AI: Regular Quants with a Bigger Bazooka?”
“In my mind the biggest problem with machine learning in its application to finance is the problem of non-stationarity.
The memories of last year's emotionally charged bull run in bitcoin are fading fast, almost as fast as the optimism earlier this year that the cryptocurrency would regain the highs of 2017. At less than half the value at which it entered the year I am hearing a few more "why the time to buy bitcoin is now" stories emerge, but this bothers me. Looking at a market I like to weigh up the rationale for buying and selling - and bitcoin at the moment seems heavily weighted one way.
In this week’s In the FICC of It podcast, Colin Lambert apologises to the English nation and Galen Stops talks about the needs of a millennial.
They also discuss the week’s news from the FX world including SGX launching futurised OTC products and LCH going live with deliverable FX options clearing, as well as deliberate upon how hedge fund performance is measured; US regulators’ attitudes to cryptocurrencies; and the latest blow to the desktop terminal industry. They close out with a quote from their favourite profession – the legal industry – which rather aptly reinforces something Colin Lambert has been saying for some years – and let’s face it, if he says enough at some stage a lawyer somewhere will have to agree, it’s the law of averages!
In case you missed some of the original coverage this week, you can catch up here:
SGX Launches “Futurised” OTC FX Product
LCH Goes Live with Deliverable FX Options Clearing
US Regulators Shift Attitudes Regarding Cryptocurrencies
Hedge Funds Suffer in June: BarclayHedge
And Finally…(subscription required)
FX markets are largely seen as mature in terms of market structure and technology, but what about fixed income markets? Colin Lambert talks to Steve Toland, founder of TransFICC about the complexities and challenges involved in modernising these markets.
He finds that while fixed income markets are behind FX markets in terms of market structure and automation, they are catching up quick, but the biggest challenge is the sheer breadth and complexity of products traded - often on the same desk.
“It’s not rocket science, but it is a different approach compared to other exchanges,” says KC Lam, head of FX and rates at SGX, when discussing the exchange’s new FlexC FX futures, which aim to “futurise” certain OTC FX product offerings.
This is, of course, a reference to the recent product initiatives launched by various exchange groups in an attempt to bridge the gap between OTC and listed FX trading.
While Eurex has launched rolling spot futures, which mimic the trading of OTC FX spot contracts, combined with the daily usage of a tom-next (T/N) swap in order to roll over the value date of the spot position, and CME has launched CME Link, spot FX basis spreads offered on Globex to create a central limit order book (CLOB) between the OTC spot FX and CME FX futures markets, SGX is indeed taking a very different approach.
Momtchil Pojarliev, deputy head of currencies at BNP Paribas Asset Management, talks about some of the misconceptions that exist amongst institutional investors regarding currency hedging.
For example, he explains that in the past, some firms have been unclear on the exact difference between absolute return strategies and active hedging.
In the former, the aim is to produce risk-adjusted returns that are as high as possible for a given volatility. The currency manager is allocated a notional amount of funds and can invest in any given currency to try and produce the maximum amount of returns possible.