High-frequency trading by AI at lightning speed shows how warring ‘bots’ have raised the risks of the money markets.
Time is money, and in high-frequency stock exchange trading, the fastest data network is the one that makes the deal. But there are dangers in reaching too far too fast.
On February 5, 2018, the Dow Jones stock market index plummeted as though it had been hit by lightning. It fell more than 1,500 points in just a few minutes. Never before in the history of the index had American stocks lost so much in a single day. Approximately $2,000bn vanished in a puff of smoke – and New York was not alone.
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The collapse spread like wildfire, to Frankfurt, Sydney and Tokyo. Panic erupted but no one knew what caused the disaster at the time. There was no discernible real-world economy reason, no new economic predictions, no unemployment statistics. The only explanation offered sounded very strange – apparently the trading computers were just too fast.
This documentary exposes the world of high-frequency trading, how it is performed exclusively by Artificial Intelligence computers rather than people, and how these computers trade against other computers, solely committed to the logic of their algorithms. Essentially, they are warring bots – money bots.
In the beginning, the intention was to use greater predictability and faster infrastructure to increase the stability of financial markets. But, in fact, the opposite has occurred. Automation has made them more vulnerable.
While the European Union is trying, unsuccessfully, to regulate this practice, the banks want a slice of the action and have set up “dark pools”, secret internal exchanges, to do so. Here, physicists, mathematicians, AI geeks, traders, ex-traders, a whistle-blower and journalists explain this decidedly shady world, which as one contributor says, seems at times to boil down to a high-stakes “game of chicken”.