4 ms·

Having tried to do this sort of thing in the past, I'm fairly skeptical. Maybe if you're trading in large volumes over short spaces of time you can make money

by motters 16y ago

Having tried to do this sort of thing in the past, I'm fairly skeptical. Maybe if you're trading in large volumes over short spaces of time you can make money with AI, but at least in my simulated runs with small scale investment the results didn't look encouraging. Also it should be borne in mind that this kind of activity isn't really making any constructive or lasting contribution to society. It's really just moving money around slightly more efficiently than previously. If you really want to change the world, do something else.

dmix 16y ago
> this kind of activity isn't really making any constructive or lasting contribution to society There was an interesting discussion about this on quora: http://www.quora.com/Is-high-frequency-trading-good-for-the-economy http://www.quora.com/Is-high-frequency-trading-good-for-the-...
vecter 16y ago
Also it should be borne in mind that this kind of activity isn't really making any constructive or lasting contribution to society. It's really just moving money around slightly more efficiently than previously. I disagree. Efficient allocation of capital is what allowed modern society to advance as far as it did. Capital markets are a tremendous innovation and add tons of value to society. Almost every startup turned major corporation out there was capitalized by the financial markets. You trivialize this value when you say investing is simply "moving money around more efficiently". That money NEEDS to be moved around more efficiently so the most productive members and organizations in society are (a) given the resources to expand their business and (b) rewarded for the value they add to society.
- cameldrv 16y ago
  Perhaps, but most of those funding decisions were not made in the public markets. Those capital allocations were made by angels, VCs, and the people who committed to investing in the IPO of the company. The only thing that the overall stock market directly controls for capital allocation is secondary offerings, which are a very small part of the allocation of productive capital. The stock market just serves to trade pieces of capital that already exist. Having the stock market be a bit more accurate, particularly on short timescales, doesn't really affect capital allocation.
- jey 16y ago
  He isn't disputing the fact that it has net-positive value creation. He's just saying that it's a tiny lever in terms of impact. You'll immeasurably increase market efficiency, but you'll still get a lot of money because finance is an area with a very high money-to-value ratio.
- JabavuAdams 16y ago
  Yes, increased liquidity has allowed us to more efficiently raise capital, but beware the liquidity dogma. Increased liquidity has been good in the past, so anything that increases liquidity must be good. Not necessarily. What are the other effects? How much do we value those? Can we even estimate them a priori? OTOH, I would argue that most web apps proposed on this site aren't really making any lasting or constructive contribution to society. The one thing that can be said is that web-startup founders as a whole are less powerful and perhaps less cynically self-serving than financiers, so they distort government policy less.
lkozma 16y ago
"isn't really making any constructive or lasting contribution to society" The common argument is that if you are increasing overall efficiency, that means that capital can be more readily available for real businesses which do make lasting contributions (often in the form of polluting the environment, but that's another question). It seems your argument is a bit simplistic. Couldn't the same logic be applied to the distribution of goods, middlemen, marketplaces, banking, etc. Are you dismissing all those?
- dagheti 16y ago
  This is true only if we accept that AI trading is actually making the market more efficient. The 'wisdom' of crowds is often foolishness, and this could be even more true for a crowd of computers. It is very possible that by using AI that looks mostly at numbers for trading is just destabilizing by relying too heavily on specific variables (the ones the algorithms can actually use as inputs) , and reduces efficient allocation of capital.
  - vecter 16y ago
    This is false. You can't make money by being consistently wrong about the "true" value of an asset. Then, the only way you can stay in business is to sell the asset when it's too high, and buy it when it's too low. Notice how doing this actually decreases the amplitude of the oscillations. If you're selling at a high point, you're pushing the price back down. Likewise, if you're buying at a low point, you're pushing the price back up (both times, towards its "true" value). The reason I use "true" in quotes is because no one really knows the value of an asset. The only real estimate we have is the market estimate. Let me put it another way: if you don't believe markets efficiently allocate capital, then how would you propose we do it? By fiat? Once again, I want to emphasize that you cannot be wrong about the value of an asset and consistently make money. If these AI algorithms are consistently making money, then they are, more often than not, accurately predicting the value of that asset (where value is defined as the future market price). Of course, my argument hinges on the market price being "right", but like I said, markets are the best way we know how to value things.
orp 16y ago
'Also it should be borne in mind that this kind of activity isn't really making any constructive or lasting contribution to society. It's really just moving money around slightly more efficiently than previously. If you really want to change the world, do something else.' I agree completely. While have reasonably efficient capital markets is necessary for society, its very hard to show that the marginal improvement offered by this kind of activity justifies the massive amounts of effort that go into it, just because: 1. It's cool. 2. It can make a lot of money. But unlike making money out of making something people want (e.g. providing value), here you're making money (if you succeed) out of very small market inefficiencies that are probably not hurting anyone, or even just by being 1ms faster then the other guys who were already catching them anyway,
wisty 16y ago
Putting Wall Street traders out of work seems like an efficient use of capital ;)
- yummyfajitas 16y ago
  Putting anyone out of work is an efficient use of capital.

by motters 16y ago

dmix 16y ago

> this kind of activity isn't really making any constructive or lasting contribution to society There was an interesting discussion about this on quora: http://www.quora.com/Is-high-frequency-trading-good-for-the-economy http://www.quora.com/Is-high-frequency-trading-good-for-the-...

vecter 16y ago

Also it should be borne in mind that this kind of activity isn't really making any constructive or lasting contribution to society. It's really just moving money around slightly more efficiently than previously. I disagree. Efficient allocation of capital is what allowed modern society to advance as far as it did. Capital markets are a tremendous innovation and add tons of value to society. Almost every startup turned major corporation out there was capitalized by the financial markets. You trivialize this value when you say investing is simply "moving money around more efficiently". That money NEEDS to be moved around more efficiently so the most productive members and organizations in society are (a) given the resources to expand their business and (b) rewarded for the value they add to society.

cameldrv 16y ago
Perhaps, but most of those funding decisions were not made in the public markets. Those capital allocations were made by angels, VCs, and the people who committed to investing in the IPO of the company. The only thing that the overall stock market directly controls for capital allocation is secondary offerings, which are a very small part of the allocation of productive capital. The stock market just serves to trade pieces of capital that already exist. Having the stock market be a bit more accurate, particularly on short timescales, doesn't really affect capital allocation.
jey 16y ago
He isn't disputing the fact that it has net-positive value creation. He's just saying that it's a tiny lever in terms of impact. You'll immeasurably increase market efficiency, but you'll still get a lot of money because finance is an area with a very high money-to-value ratio.
JabavuAdams 16y ago
Yes, increased liquidity has allowed us to more efficiently raise capital, but beware the liquidity dogma. Increased liquidity has been good in the past, so anything that increases liquidity must be good. Not necessarily. What are the other effects? How much do we value those? Can we even estimate them a priori? OTOH, I would argue that most web apps proposed on this site aren't really making any lasting or constructive contribution to society. The one thing that can be said is that web-startup founders as a whole are less powerful and perhaps less cynically self-serving than financiers, so they distort government policy less.

lkozma 16y ago

"isn't really making any constructive or lasting contribution to society" The common argument is that if you are increasing overall efficiency, that means that capital can be more readily available for real businesses which do make lasting contributions (often in the form of polluting the environment, but that's another question). It seems your argument is a bit simplistic. Couldn't the same logic be applied to the distribution of goods, middlemen, marketplaces, banking, etc. Are you dismissing all those?

dagheti 16y ago
This is true only if we accept that AI trading is actually making the market more efficient. The 'wisdom' of crowds is often foolishness, and this could be even more true for a crowd of computers. It is very possible that by using AI that looks mostly at numbers for trading is just destabilizing by relying too heavily on specific variables (the ones the algorithms can actually use as inputs) , and reduces efficient allocation of capital.
- vecter 16y ago
  This is false. You can't make money by being consistently wrong about the "true" value of an asset. Then, the only way you can stay in business is to sell the asset when it's too high, and buy it when it's too low. Notice how doing this actually decreases the amplitude of the oscillations. If you're selling at a high point, you're pushing the price back down. Likewise, if you're buying at a low point, you're pushing the price back up (both times, towards its "true" value). The reason I use "true" in quotes is because no one really knows the value of an asset. The only real estimate we have is the market estimate. Let me put it another way: if you don't believe markets efficiently allocate capital, then how would you propose we do it? By fiat? Once again, I want to emphasize that you cannot be wrong about the value of an asset and consistently make money. If these AI algorithms are consistently making money, then they are, more often than not, accurately predicting the value of that asset (where value is defined as the future market price). Of course, my argument hinges on the market price being "right", but like I said, markets are the best way we know how to value things.

orp 16y ago

'Also it should be borne in mind that this kind of activity isn't really making any constructive or lasting contribution to society. It's really just moving money around slightly more efficiently than previously. If you really want to change the world, do something else.' I agree completely. While have reasonably efficient capital markets is necessary for society, its very hard to show that the marginal improvement offered by this kind of activity justifies the massive amounts of effort that go into it, just because: 1. It's cool. 2. It can make a lot of money. But unlike making money out of making something people want (e.g. providing value), here you're making money (if you succeed) out of very small market inefficiencies that are probably not hurting anyone, or even just by being 1ms faster then the other guys who were already catching them anyway,

wisty 16y ago

Putting Wall Street traders out of work seems like an efficient use of capital ;)

yummyfajitas 16y ago
Putting anyone out of work is an efficient use of capital.