The Geeks Have Won

This is the kind of story the media loves to write:

Traditional floor trading “really is an alpha-male activity,” said Brett Steenbarger, and an associate professor of psychiatry at State University of New York at Syracuse and an expert in the psychology of trading. “You get these highly competitive people taking a good amount of risk … It’s like being in a locker room. In contrast, computer programmers are almost like a think tank.”
Now, with high-frequency trading representing some 60 percent of U.S. stock trades, the atmosphere appears to owe as much to Arthur C. Clarke and artificial intelligence as to Gordon Gekko and the 1987 movie “Wall Street.”
“They are introverts, some are socially awkward, and they don’t seek publicity. They are the type of guys you would see at a Star Wars convention,” said Sang Lee of Aite Group.
High-frequency traders are practical, problem-solving people with an engineering background. “It’s a very intellectually challenging field — it’s extremely exciting to develop a strategy, implement it and see it make money,” Mr. Steenbarger said.
And it can be very lucrative, with a programmer typically making 10 percent commission on the money his model generates, said Irene Aldridge of Able Alpha Trading, a one-time quantitative specialist at CIBC in Toronto who has a forthcoming book on the practicalities of high-frequency trading and algorithmic strategies.
The best programmers can make tens of millions of dollars a year. That was even the case during last year’s financial crisis, as great volatility offered both risks and opportunities for high-frequency traders.
“It’s a highly technical, mathematical game,” Mr. Berkeley said. “They are playing a very precise game of statistically estimating and predicting over the next three to five seconds whether there is going to be any liquidity in that stock and where it is. And how they can take it without being seen and without leaving any tracks.”
Low key and somewhat awkward, these introverted but brilliant traders look up to James Simons, the Renaissance Technologies fund manager known as the “King of the Quants.”

Posted by on December 2nd, 2009 at 12:31 pm


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