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Goldman Sachs automated trading replaces 600 traders with 200 engineers

261 points by mgiannopoulos 10y ago

Animats 10y ago
"Those 600 traders, there is a lot of space where they used to sit."
- user5994461 10y ago
  May the next article be "Goldman Sachs reorganizes the free space into a small office layout" then we're all moving back to Goldman :D
chollida1 10y ago
....where the time frame involved is 17 years from 2000 until now. It's also weird that they don't mention the about to be dismantled Dodd-Frank Act (Volker Rule) that forced most sell side firms out of prop trading. I guess the headline, "computers replace humans for the most mundane and rules based tasks" doesn't grab headlines as much:) One other interesting tidbit > Some 9,000 people, about one-third of Goldman’s staff, are computer engineers. Goldman has always had a larger focus on tech than most other sell side firms, and that says alot given how much they all put into their technology, but a full 1/3 of all employee's sends a very strong signal of how much they value their tech. Interestingly, it might have been those traders that slowed the progress of the firm in the early 2000's. You can argue, and I've talked to former GS people who made this argument to me, that having the existing traders really slowed down GS in the march towards high speed trading. Michael Lewis's also makes this point in his Flash boys book. And not to put too fine of a point on it, but replacing a trader making $1,000,000 a year because he has a direct PnL with a 1/3 of an engineer making 1/2 of that, because the algo has the Pnl not the trader, is a big win for the bonus pool available to management:)
- SilasX 10y ago
  >>Some 9,000 people, about one-third of Goldman’s staff, are computer engineers. Is that right, or is that just a confused journalist? Computer engineers? As in, hardware design so they can shave off nanoseconds here and there? Or do they just mean programmers of any kind here?
  - kevin_thibedeau 10y ago
    Confused journalist, although all of the major firms do employ EEs and CEs to develop HFT hardware.
  - dx034 10y ago
    Probably right, just poorly worded. It's not just engineers, it's all staff in tech. Most of them will have a CS degree (or similar). Nearly none of them will develop trading algorithms. It's mostly about maintaining systems, fixing problems, updating regulatory changes, integrating third party data, etc. Having a third of headcount in tech is not unusual for a bank nowadays.
- maxxxxx 10y ago
  "And not to put too fine of a point on it, but replacing a trader making $1,000,000 a year because he has a direct PnL with a 1/3 of an engineer making 1/2 of that, because the algo has the Pnl not the trader, is a big win for the bonus pool available to management:)" Even better if you can outsource that engineer to India after a while :-)
  - B1FF_PSUVM 10y ago
    Bonusgasm ...
- dx034 10y ago
  Having 1/3 of headcount in tech is completely normal for most banks and other financials (except retail banking). If you count all contractors and outsourced areas it'll probably be closer to 40-45%. But most of that will be maintenance, rule checking, data entry, implementing regulatory changes, etc. Only a tiny amount of those will develop algorithms or work close to trading.
tomelders 10y ago
A agency that I once worked for was asked to create a presentation of the future of trading for a well known trading platform. It was the typical fluff around voice interfaces, augmented reality, VR and all that drivel. But we all knew what the future really meant - taking people out of the equation - but we also knew that the people paying for the presentation didn't want to hear that. When people talk about the risk of automation stealing jobs, they tend to think it's the low skilled jobs that are most at risk. But of your job is to look at data and make descisions based on that data, you're gonna be the first to go. And the more money pinned to your work, the quicker you will be replaced.
- burkaman 10y ago
  Isn't this type of trading sort of unique in how easy it is to consume the data? Even in other investing areas, people who just "look at data and make decisions" cannot be easily replaced until computers can read and understand natural language and understand the state of the world. I can't immediately think of anything else this type of automation could apply to.
  - Retric 10y ago
    Computers are already making trades based on natural language articles. EX of some research from 2008: http://www.seas.upenn.edu/~cse400/CSE400_2007_2008/DavdaMittal/project.html http://www.seas.upenn.edu/~cse400/CSE400_2007_2008/DavdaMitt... You see real world movement within seconds of the release of some public data. Which is far to soon for humans to read much of anything.
    - nosuchthing 10y ago
      I'd have to wonder what type of safeguards vet against intentional false data released to poison the well of other HFT bots? Maybe it's not too important yet because HFT bots only need to game the slower mass of "dumb (reactionary) money"
      - adamiscool8 10y ago
Namrog84 10y ago
Since when are traders "the Masters of the Universe"? Apparently a 1987 reference to a Tom Wolfe novel? Is this phrase commonly used in finance? or just a sensationalized title from the author. I feel like if any profession is going to be given that title, it should be engineers and scientists. Though I am definitely biased.
- fullshark 10y ago
  It's a Bonfire of the Vanities reference which was a He-man reference for sure. It's tongue in cheek.
curiousgal 10y ago
https://en.wikipedia.org/wiki/Long-Term_Capital_Management https://en.wikipedia.org/wiki/Long-Term_Capital_Management ?? Edit: Due to the swift downvotes, let me elaborate. I am not saying this will be the case, I just think that philosophically, blind reliance on algorithms can be catastrophic.
- forgetsusername 10y ago
  >blind reliance on algorithms can be catastrophic. And in other places, basic algorithms smash human judgement: https://www.amazon.com/Clinical-Versus-Statistical-Prediction-Theoretical/dp/0963878492/ref=sr_1_1?ie=UTF8&qid=1486504647&sr=8-1&keywords=Clinical+vs.+Statistical+Prediction%3A+A+Theoretical+Analysis+and+a+Review+of+the+Evidence https://www.amazon.com/Clinical-Versus-Statistical-Predictio...
brilliantcode 10y ago
I'm super skeptical of these type of automated trading outfits. There's no edge in them. All you've done is take a shoddy system done by hand into code. At the end of the day, they still crap out when the market conditions it was designed for shifts or naive view of the markets as something as a math formula. Exceptions are HFT, arbitrages where you don't need to speculate and take the corresponding risks.
- frankydp 10y ago
  I believe the article is mostly referring to trading and not investing. Trading as in the operational functions of trades(organizing direct registered or street name broker buyers and sellers), not the investment strategy associated with holdings.
- rb808 10y ago
  From the article > employed 600 traders, buying and selling stock on the orders of the investment bank’s large clients. The traders sound fancy but werent much more than call center staff, receiving orders by telephone and writing paper tickets. They weren't prop traders.
cm2187 10y ago
A lot of dope smoking in this article. There are a handful of markets that are large and liquid enough to fully move to electronic trading, like spot FX, vanilla interest rate swaps, perhaps treasuries trading. But most other markets are very much relationship driven. For instance a trader will make a market on illiquid bonds based on what he thinks is the appetite from the short list of potential buyers, and that's based on sales people and brokers discussing with these investors and feeding him with feedback. Very similar for mergers and acquisition which is mentioned in the article. It's probably something like 1/3 relationship and advisory to the client, 1/3 going through legal and regulatory issues, 1/3 working out financials, which are often based on unique and complex accounting standards, market specific idiosyncrasies, etc. Good luck training an AI algorithm to do that. And with what data? There is massive room for improvement in the financial industry. But most likely in the more boring areas of operations and settlement (cash settlements for instance are massively labor intensive as there are always incidents, system issues, accounts details changing, etc). My personal experience of corporate IT in a large international bank is that there is a handful of good people but an enormous army of average to well below average people who do not know the difference between cash and capital other than it starts with a c, i.e. are completely uninterested by the domain they work on, and aren't good technically either. And these will ensure that outside of a few players (including probably goldman), we are guaranteed that automation is far far away no matter how much money we throw at it...
- blazespin 10y ago
  As Big Data encroaches more and more into reality these decisions are going to be less relationship based and more AI based. The reason before it had to be relationship based was because computers didn't have visibility into the real world to make these decisions. However, with the advent of big data, their visibility is increasing.
  - cm2187 10y ago
    What big data? How many acquisitions of an irish insurance company by a german bank are you going to use to train your algorithm to understand the legal and regulatory issues? How are you going to teach your algorithm to anticipate how IFRS9 or the upcoming Banking regulations being discussed with the regulator going to affect that? How are you going to train your algorithm to draft the disclosures in the offering circular, or to challenge the management's view during the due diligence? Are you going to mine gmail traffic? Are you going to mine websites? There are like one or two companies in the world that would face this particular combination of problems. You won't find a nice article on wikipedia to tell you how to handle it. What big data?
blazespin 10y ago
fun fact: Advanced AI techniques work in very high dimensional spaces in such a way that it's impossible to clearly understand why a program reaches a conclusion that it does. Market trading is about allocating capital that decides how labor itself is allocated. So, increasingly, we have computers that are telling people what to work on and we don't know why they are making those decisions. We could remove the computers, but then our economy would likely fall into a deflationary spiral / depression due to lack of growth.
- eru 10y ago
  A drop in real GDP, perhaps. A deflationary spiral or depression? No need. The central bank can always print enough money and buy enough assets to keep spending up.
- dx034 10y ago
  Those engineers are probably not working on AI. The traders were receiving phone orders from clients and executed them. Now there's a platform where clients put in trades which get executed. The engineers develop the platform and enable the remaining traders to trade orders efficiently. It's probably at least 30% front-end web developers, many testers, some back-end developers. Execution only trading engines aren't that hard to develop.
bitmapbrother 10y ago
I wonder how long it is before those 200 engineers gets reduced to 150 engineers and then 100 and then 50 and then 10 and then 2.
fredgrott 10y ago
My question is are the jobs disrupted really stolen.. according to Mr Klarman(see the NYTime article) this automation trends lead to more inefficiency in markets not less and thus give opportunities to some traders to bet long term in the other direction.. Or are those disrupted jobs just getting re-deployed as new trading businesses betting on some long term stuff..
- pbk1 10y ago
  Klarman said Trump's protectionist stance against automation and globalization will lead to market inefficiencies. He also said the increase in passive investment relying on the efficient markets hypothesis (EMH) will eventually lead to mispricings and inefficiencies that can be taken advantage of by active investors such as himself. Those two things have nothing to do with the automation of execution trading and market-making. So he is not claiming that automating the execution trading and market-making done by banks in highly liquid markets (equities in OP) will lead to more inefficiency.
lovich 10y ago
The article talks about the number of traders they replaced with engineers. Assuming that other investment banks are on the same trend, where are these traders going to get new jobs? Are they just retiring because they made enough money while trading?
- branchless 10y ago
  They are going to take their amazing wealth-creating skills out into the wider world and we are going to see a second industrial-revolution. Exciting times are ahead...
- dx034 10y ago
  That was done over a decade or so. Many people will have retired, some continued working in another function, some just went somewhere else. There are still many traders out there, the market is not that much smaller than 10 years ago.
grondilu 10y ago
What about other instruments? I used to work as an IT in a small investment bank, and the traders there were not doing any equity trading. They were dealing with bonds, swaps and stuff, and they were mostly doing arbitrage, IIRC. Also there was one guy on forex, but I vaguely remember that he was not supposed to speculate, rather he was supposed to trade whatever was necessary for the other guys to work. Is the equity market really that significant that we seem to only talk about it?
- mooreds 10y ago
  It's like the drink looking under the light for his keys.
  - mooreds 10y ago
    Ack "drunk". Oh autocorrect, you scamp!
- dx034 10y ago
  > Is the equity market really that significant that we seem to only talk about it? No, but most people only really understand equity markets. Few people know what it means to trade a swap or even bonds. But as most people have some experience with equities, it's easier to write about that. You won't find much automation in other areas, OTC trading can't be easily replaced by machines.
  - monkeydust 10y ago
    As I said above, for Cash fixed income (bonds) it's happening today, it's trending up for sure. Technology exists for liquid swaps also, that will be next.
RangerScience 10y ago
So... if 600 traders were replaced with 200 engineers, do the engineers make 2-3x the salary of the replaced traders?
- sake 10y ago
  Capitalist makes profit by minimizing worker's pay in relation to the value the work produces. (But if it makes you sleep your nights better the answer is yes!)
- FT_intern 10y ago
  No, engineers are not paid well at Goldman
  - RangerScience 10y ago
    So... There was another post up not to long ago about a programmer's union. The comments critiqued the need for it, but were talking generally. Is there an opportunity for a financial programmer's union, so that the value those engineers bring is better shared with the people bringing them?
Shalhoub 10y ago
"Goldman Sachs automated trading replaces 600 traders with 200 engineers" You mean 600 traders replaced with a High Frequency Trading (HFT) computer. http://bertdohmen.com/hft-algo-computers-crash-fx-markets/ http://bertdohmen.com/hft-algo-computers-crash-fx-markets/
- LudoHK 10y ago
  Very different they are not talking about HF, it's more about automatize all the processes of entire desk especially around equities. they are not mentioning at all about HF in the article.
anigbrowl 10y ago
I bet almost none of those 200 engineers negotiated half as good a deal for themselves as any of the 600 traders.
- deleted 10y ago
  [deleted]
- kevin_thibedeau 10y ago
  Or get 1/10th the bonus.
- dx034 10y ago
  Traders who just forwarded phone orders didn't make that much. The bank only gets the commission, there's not much the trader can do to increase profits. The huge bonuses are/were in prop trading, not in executing client trades.
  - anigbrowl 10y ago
    All true, but I've never met a securities trader who wasn't ambitious, and ones that aren't don't tend to get hired. I'm still betting on the suspender brigade over the pocket protectors.
freddyc 10y ago
Want to know how I know AI is over-hyped? All of the VCs who were bullish on Bitcoin a few years back are now "thought leaders" on AI.
- ionwake 10y ago
  You sound wrong. Reread your comment and look at the price of bitcoin. Perhaps your inference is upside down.
  - dx034 10y ago
    The price is high, but bitcoin is still not a reliable currency that could present an alternative to established currencies. It seems to be mainly used for speculation and illegal activities. There are probably not more people using it to pay for real-world goods than 2-3 years ago. The bullish view was that bitcoin would be popular with the public at some point. That hasn't happened yet.
0xfaded 10y ago
Does anyone know ballpark salaries / bonuses for financial firms. As someone who knows Scala and other functional languages I get a lot of recruiter spam with 200k+ tag lines bit I've never really pursued the issue.
mtillman 10y ago
Most of the automation infrastructure (allocations, counter-party APIs, etc) for this change started in the early 2000's. For example, the initial allocation network was in place by 2003. Other firms who prefer to remain unknown (don't need engineering recruiting PR) were nearly a decade ahead of GS. RGM, Vertu, others. Let me know if you want to work on this type of thing. Happy to help.
hugodahl 10y ago
I am curious how the compensation of the engineers compares to that of the traders, whose job function their systems have replaced. Not only base salary, but bonuses, commissions, and all those extras. Do the engineers get comparable extras, or are they a "flat cost"?
- flukus 10y ago
  If my experience in finance is anything to go by then they're the cheapest engineers money can buy.
qwrusz 10y ago
I realize the irony of this comment: But Marty Chavez is one of the few openly gay, latino Wall St. execs. Great, diversity, progress... This wasn't mentioned in the article and to be honest, that is rare and it was cool to read on article focused on Marty's skills as a professional banker (a good one) without feeling the need to bring up his personal life.
known 10y ago
AKA https://en.wikipedia.org/wiki/Peter_principle https://en.wikipedia.org/wiki/Peter_principle
monkeydust 10y ago
From someone who has worked in OTC technology trading for 10 years:- - A lot of cash fixed income trading is open to automation, in fact it amazes me when I watch some execution traders in action. Their process is highly predictable: Get order into their execution blotter, send out RFQ to brokers, get back prices, check best price against a known value e.g. limit price, trade/no-trade. - This holds true for perhaps 80% of flow for a wealth/retail fund which trade mostly liquid bonds under 1MM. For real-money and hedge funds that ratio is perhaps <50% but still significant. - AI is not the biggest driver of automation here but rather the openness of systems. By this I mean order management systems can interface to execution management systems that can interface to venues. FIX/FpML have helped this happen. - I see this as augmentation for the trader rather than replacing him/her. Its a brand new colleague that can do the 'boring' work so they can go hunting for liquidity!
drallison 10y ago
No one seems to grok the real question here: "Why does Goldman Sachs automated trading still need 200 engineers?". What are those engineers doing? And why will they still be needed in 5, 10, or 20 years? Where are goals created and trading decisions made? How are automated trading systems going to evolve? Once working, will automated trading systems need regular replacement and upgrades to protect them from bit rot?

261 points by mgiannopoulos 10y ago

Animats 10y ago

"Those 600 traders, there is a lot of space where they used to sit."

user5994461 10y ago
May the next article be "Goldman Sachs reorganizes the free space into a small office layout" then we're all moving back to Goldman :D

chollida1 10y ago

....where the time frame involved is 17 years from 2000 until now. It's also weird that they don't mention the about to be dismantled Dodd-Frank Act (Volker Rule) that forced most sell side firms out of prop trading. I guess the headline, "computers replace humans for the most mundane and rules based tasks" doesn't grab headlines as much:) One other interesting tidbit > Some 9,000 people, about one-third of Goldman’s staff, are computer engineers. Goldman has always had a larger focus on tech than most other sell side firms, and that says alot given how much they all put into their technology, but a full 1/3 of all employee's sends a very strong signal of how much they value their tech. Interestingly, it might have been those traders that slowed the progress of the firm in the early 2000's. You can argue, and I've talked to former GS people who made this argument to me, that having the existing traders really slowed down GS in the march towards high speed trading. Michael Lewis's also makes this point in his Flash boys book. And not to put too fine of a point on it, but replacing a trader making $1,000,000 a year because he has a direct PnL with a 1/3 of an engineer making 1/2 of that, because the algo has the Pnl not the trader, is a big win for the bonus pool available to management:)

SilasX 10y ago
>>Some 9,000 people, about one-third of Goldman’s staff, are computer engineers. Is that right, or is that just a confused journalist? Computer engineers? As in, hardware design so they can shave off nanoseconds here and there? Or do they just mean programmers of any kind here?
- kevin_thibedeau 10y ago
  Confused journalist, although all of the major firms do employ EEs and CEs to develop HFT hardware.
- dx034 10y ago
  Probably right, just poorly worded. It's not just engineers, it's all staff in tech. Most of them will have a CS degree (or similar). Nearly none of them will develop trading algorithms. It's mostly about maintaining systems, fixing problems, updating regulatory changes, integrating third party data, etc. Having a third of headcount in tech is not unusual for a bank nowadays.
maxxxxx 10y ago
"And not to put too fine of a point on it, but replacing a trader making $1,000,000 a year because he has a direct PnL with a 1/3 of an engineer making 1/2 of that, because the algo has the Pnl not the trader, is a big win for the bonus pool available to management:)" Even better if you can outsource that engineer to India after a while :-)
- B1FF_PSUVM 10y ago
  Bonusgasm ...
dx034 10y ago
Having 1/3 of headcount in tech is completely normal for most banks and other financials (except retail banking). If you count all contractors and outsourced areas it'll probably be closer to 40-45%. But most of that will be maintenance, rule checking, data entry, implementing regulatory changes, etc. Only a tiny amount of those will develop algorithms or work close to trading.

tomelders 10y ago

A agency that I once worked for was asked to create a presentation of the future of trading for a well known trading platform. It was the typical fluff around voice interfaces, augmented reality, VR and all that drivel. But we all knew what the future really meant - taking people out of the equation - but we also knew that the people paying for the presentation didn't want to hear that. When people talk about the risk of automation stealing jobs, they tend to think it's the low skilled jobs that are most at risk. But of your job is to look at data and make descisions based on that data, you're gonna be the first to go. And the more money pinned to your work, the quicker you will be replaced.

burkaman 10y ago
Isn't this type of trading sort of unique in how easy it is to consume the data? Even in other investing areas, people who just "look at data and make decisions" cannot be easily replaced until computers can read and understand natural language and understand the state of the world. I can't immediately think of anything else this type of automation could apply to.
- Retric 10y ago
  Computers are already making trades based on natural language articles. EX of some research from 2008: http://www.seas.upenn.edu/~cse400/CSE400_2007_2008/DavdaMittal/project.html http://www.seas.upenn.edu/~cse400/CSE400_2007_2008/DavdaMitt... You see real world movement within seconds of the release of some public data. Which is far to soon for humans to read much of anything.
  - nosuchthing 10y ago
    I'd have to wonder what type of safeguards vet against intentional false data released to poison the well of other HFT bots? Maybe it's not too important yet because HFT bots only need to game the slower mass of "dumb (reactionary) money"
    - adamiscool8 10y ago

Namrog84 10y ago

Since when are traders "the Masters of the Universe"? Apparently a 1987 reference to a Tom Wolfe novel? Is this phrase commonly used in finance? or just a sensationalized title from the author. I feel like if any profession is going to be given that title, it should be engineers and scientists. Though I am definitely biased.

fullshark 10y ago
It's a Bonfire of the Vanities reference which was a He-man reference for sure. It's tongue in cheek.

curiousgal 10y ago

https://en.wikipedia.org/wiki/Long-Term_Capital_Management https://en.wikipedia.org/wiki/Long-Term_Capital_Management ?? Edit: Due to the swift downvotes, let me elaborate. I am not saying this will be the case, I just think that philosophically, blind reliance on algorithms can be catastrophic.

forgetsusername 10y ago
>blind reliance on algorithms can be catastrophic. And in other places, basic algorithms smash human judgement: https://www.amazon.com/Clinical-Versus-Statistical-Prediction-Theoretical/dp/0963878492/ref=sr_1_1?ie=UTF8&qid=1486504647&sr=8-1&keywords=Clinical+vs.+Statistical+Prediction%3A+A+Theoretical+Analysis+and+a+Review+of+the+Evidence https://www.amazon.com/Clinical-Versus-Statistical-Predictio...

brilliantcode 10y ago

I'm super skeptical of these type of automated trading outfits. There's no edge in them. All you've done is take a shoddy system done by hand into code. At the end of the day, they still crap out when the market conditions it was designed for shifts or naive view of the markets as something as a math formula. Exceptions are HFT, arbitrages where you don't need to speculate and take the corresponding risks.

frankydp 10y ago
I believe the article is mostly referring to trading and not investing. Trading as in the operational functions of trades(organizing direct registered or street name broker buyers and sellers), not the investment strategy associated with holdings.
rb808 10y ago
From the article > employed 600 traders, buying and selling stock on the orders of the investment bank’s large clients. The traders sound fancy but werent much more than call center staff, receiving orders by telephone and writing paper tickets. They weren't prop traders.

cm2187 10y ago

A lot of dope smoking in this article. There are a handful of markets that are large and liquid enough to fully move to electronic trading, like spot FX, vanilla interest rate swaps, perhaps treasuries trading. But most other markets are very much relationship driven. For instance a trader will make a market on illiquid bonds based on what he thinks is the appetite from the short list of potential buyers, and that's based on sales people and brokers discussing with these investors and feeding him with feedback. Very similar for mergers and acquisition which is mentioned in the article. It's probably something like 1/3 relationship and advisory to the client, 1/3 going through legal and regulatory issues, 1/3 working out financials, which are often based on unique and complex accounting standards, market specific idiosyncrasies, etc. Good luck training an AI algorithm to do that. And with what data? There is massive room for improvement in the financial industry. But most likely in the more boring areas of operations and settlement (cash settlements for instance are massively labor intensive as there are always incidents, system issues, accounts details changing, etc). My personal experience of corporate IT in a large international bank is that there is a handful of good people but an enormous army of average to well below average people who do not know the difference between cash and capital other than it starts with a c, i.e. are completely uninterested by the domain they work on, and aren't good technically either. And these will ensure that outside of a few players (including probably goldman), we are guaranteed that automation is far far away no matter how much money we throw at it...

blazespin 10y ago
As Big Data encroaches more and more into reality these decisions are going to be less relationship based and more AI based. The reason before it had to be relationship based was because computers didn't have visibility into the real world to make these decisions. However, with the advent of big data, their visibility is increasing.
- cm2187 10y ago
  What big data? How many acquisitions of an irish insurance company by a german bank are you going to use to train your algorithm to understand the legal and regulatory issues? How are you going to teach your algorithm to anticipate how IFRS9 or the upcoming Banking regulations being discussed with the regulator going to affect that? How are you going to train your algorithm to draft the disclosures in the offering circular, or to challenge the management's view during the due diligence? Are you going to mine gmail traffic? Are you going to mine websites? There are like one or two companies in the world that would face this particular combination of problems. You won't find a nice article on wikipedia to tell you how to handle it. What big data?

blazespin 10y ago

fun fact: Advanced AI techniques work in very high dimensional spaces in such a way that it's impossible to clearly understand why a program reaches a conclusion that it does. Market trading is about allocating capital that decides how labor itself is allocated. So, increasingly, we have computers that are telling people what to work on and we don't know why they are making those decisions. We could remove the computers, but then our economy would likely fall into a deflationary spiral / depression due to lack of growth.

eru 10y ago
A drop in real GDP, perhaps. A deflationary spiral or depression? No need. The central bank can always print enough money and buy enough assets to keep spending up.
dx034 10y ago
Those engineers are probably not working on AI. The traders were receiving phone orders from clients and executed them. Now there's a platform where clients put in trades which get executed. The engineers develop the platform and enable the remaining traders to trade orders efficiently. It's probably at least 30% front-end web developers, many testers, some back-end developers. Execution only trading engines aren't that hard to develop.

bitmapbrother 10y ago

I wonder how long it is before those 200 engineers gets reduced to 150 engineers and then 100 and then 50 and then 10 and then 2.

fredgrott 10y ago

My question is are the jobs disrupted really stolen.. according to Mr Klarman(see the NYTime article) this automation trends lead to more inefficiency in markets not less and thus give opportunities to some traders to bet long term in the other direction.. Or are those disrupted jobs just getting re-deployed as new trading businesses betting on some long term stuff..

pbk1 10y ago
Klarman said Trump's protectionist stance against automation and globalization will lead to market inefficiencies. He also said the increase in passive investment relying on the efficient markets hypothesis (EMH) will eventually lead to mispricings and inefficiencies that can be taken advantage of by active investors such as himself. Those two things have nothing to do with the automation of execution trading and market-making. So he is not claiming that automating the execution trading and market-making done by banks in highly liquid markets (equities in OP) will lead to more inefficiency.

lovich 10y ago

The article talks about the number of traders they replaced with engineers. Assuming that other investment banks are on the same trend, where are these traders going to get new jobs? Are they just retiring because they made enough money while trading?

branchless 10y ago
They are going to take their amazing wealth-creating skills out into the wider world and we are going to see a second industrial-revolution. Exciting times are ahead...
dx034 10y ago
That was done over a decade or so. Many people will have retired, some continued working in another function, some just went somewhere else. There are still many traders out there, the market is not that much smaller than 10 years ago.

grondilu 10y ago

What about other instruments? I used to work as an IT in a small investment bank, and the traders there were not doing any equity trading. They were dealing with bonds, swaps and stuff, and they were mostly doing arbitrage, IIRC. Also there was one guy on forex, but I vaguely remember that he was not supposed to speculate, rather he was supposed to trade whatever was necessary for the other guys to work. Is the equity market really that significant that we seem to only talk about it?

mooreds 10y ago
It's like the drink looking under the light for his keys.
- mooreds 10y ago
  Ack "drunk". Oh autocorrect, you scamp!
dx034 10y ago
> Is the equity market really that significant that we seem to only talk about it? No, but most people only really understand equity markets. Few people know what it means to trade a swap or even bonds. But as most people have some experience with equities, it's easier to write about that. You won't find much automation in other areas, OTC trading can't be easily replaced by machines.
- monkeydust 10y ago
  As I said above, for Cash fixed income (bonds) it's happening today, it's trending up for sure. Technology exists for liquid swaps also, that will be next.

RangerScience 10y ago

So... if 600 traders were replaced with 200 engineers, do the engineers make 2-3x the salary of the replaced traders?

sake 10y ago
Capitalist makes profit by minimizing worker's pay in relation to the value the work produces. (But if it makes you sleep your nights better the answer is yes!)
FT_intern 10y ago
No, engineers are not paid well at Goldman
- RangerScience 10y ago
  So... There was another post up not to long ago about a programmer's union. The comments critiqued the need for it, but were talking generally. Is there an opportunity for a financial programmer's union, so that the value those engineers bring is better shared with the people bringing them?

Shalhoub 10y ago

"Goldman Sachs automated trading replaces 600 traders with 200 engineers" You mean 600 traders replaced with a High Frequency Trading (HFT) computer. http://bertdohmen.com/hft-algo-computers-crash-fx-markets/ http://bertdohmen.com/hft-algo-computers-crash-fx-markets/

LudoHK 10y ago
Very different they are not talking about HF, it's more about automatize all the processes of entire desk especially around equities. they are not mentioning at all about HF in the article.

anigbrowl 10y ago

I bet almost none of those 200 engineers negotiated half as good a deal for themselves as any of the 600 traders.

deleted 10y ago
[deleted]
kevin_thibedeau 10y ago
Or get 1/10th the bonus.
dx034 10y ago
Traders who just forwarded phone orders didn't make that much. The bank only gets the commission, there's not much the trader can do to increase profits. The huge bonuses are/were in prop trading, not in executing client trades.
- anigbrowl 10y ago
  All true, but I've never met a securities trader who wasn't ambitious, and ones that aren't don't tend to get hired. I'm still betting on the suspender brigade over the pocket protectors.

freddyc 10y ago

Want to know how I know AI is over-hyped? All of the VCs who were bullish on Bitcoin a few years back are now "thought leaders" on AI.

ionwake 10y ago
You sound wrong. Reread your comment and look at the price of bitcoin. Perhaps your inference is upside down.
- dx034 10y ago
  The price is high, but bitcoin is still not a reliable currency that could present an alternative to established currencies. It seems to be mainly used for speculation and illegal activities. There are probably not more people using it to pay for real-world goods than 2-3 years ago. The bullish view was that bitcoin would be popular with the public at some point. That hasn't happened yet.

0xfaded 10y ago

Does anyone know ballpark salaries / bonuses for financial firms. As someone who knows Scala and other functional languages I get a lot of recruiter spam with 200k+ tag lines bit I've never really pursued the issue.

mtillman 10y ago

Most of the automation infrastructure (allocations, counter-party APIs, etc) for this change started in the early 2000's. For example, the initial allocation network was in place by 2003. Other firms who prefer to remain unknown (don't need engineering recruiting PR) were nearly a decade ahead of GS. RGM, Vertu, others. Let me know if you want to work on this type of thing. Happy to help.

hugodahl 10y ago

I am curious how the compensation of the engineers compares to that of the traders, whose job function their systems have replaced. Not only base salary, but bonuses, commissions, and all those extras. Do the engineers get comparable extras, or are they a "flat cost"?

flukus 10y ago
If my experience in finance is anything to go by then they're the cheapest engineers money can buy.

qwrusz 10y ago

I realize the irony of this comment: But Marty Chavez is one of the few openly gay, latino Wall St. execs. Great, diversity, progress... This wasn't mentioned in the article and to be honest, that is rare and it was cool to read on article focused on Marty's skills as a professional banker (a good one) without feeling the need to bring up his personal life.

known 10y ago

AKA https://en.wikipedia.org/wiki/Peter_principle https://en.wikipedia.org/wiki/Peter_principle

monkeydust 10y ago

From someone who has worked in OTC technology trading for 10 years:- - A lot of cash fixed income trading is open to automation, in fact it amazes me when I watch some execution traders in action. Their process is highly predictable: Get order into their execution blotter, send out RFQ to brokers, get back prices, check best price against a known value e.g. limit price, trade/no-trade. - This holds true for perhaps 80% of flow for a wealth/retail fund which trade mostly liquid bonds under 1MM. For real-money and hedge funds that ratio is perhaps <50% but still significant. - AI is not the biggest driver of automation here but rather the openness of systems. By this I mean order management systems can interface to execution management systems that can interface to venues. FIX/FpML have helped this happen. - I see this as augmentation for the trader rather than replacing him/her. Its a brand new colleague that can do the 'boring' work so they can go hunting for liquidity!

drallison 10y ago

No one seems to grok the real question here: "Why does Goldman Sachs automated trading still need 200 engineers?". What are those engineers doing? And why will they still be needed in 5, 10, or 20 years? Where are goals created and trading decisions made? How are automated trading systems going to evolve? Once working, will automated trading systems need regular replacement and upgrades to protect them from bit rot?