The book below makes the following quote:
"A news-breaking account of the global stock market's subterranean battles, Dark Pools portrays the rise of the "bots"- artificially intelligent systems that execute trades in milliseconds and use the cover of darkness to out-maneuver the humans who've created them."
The book is focused on stock markets but there has also been a lot of interest, in artificially intelligent systems in Forex trading. Many traders think there the future of trading and for some reason, they think these systems make money and create an unfair market, with the users having an advantage over the little guy but this is rubbish. According to the notes on the book:
Algorithmic Trading Systems Out of Control
"Secretive exchanges called dark pools and a new species of trading machines that could think, and that seemed, ominously, to be slipping the control of their human masters"
Out of control of their human masters really?
Just switch them off and that will sort it out. The idea of these machines out of control and thinking for themselves is just hype. The book doesn't give any kind of insight into the technical or mathematical tools that are used in these systems and doesn't go into the trading strategies, algorithms, and artificial intelligence used in them and to be honest - who really cares?
Dont Fall for the Hype
Don't get me wrong, I like this book in terms of it being a page turner and a compelling story and its good in terms of - why enforcing more regulation on the people who trade shares, Forex and any other financial instrument for that matter is a good thing - but the idea that computerized trading creates an unfair advantage for these traders is just stupid.
Sure, you get more volatility than you did before the rise of electronic trading but these systems fail overall to make money because there to short term. Traders have an obsession in thinking algo trading is the future but correct me if I am wrong but don't 90% of traders lose today just as they did, before the rise of electronic trading and algorithmic trading systems?
Of course they do and this percentage will always lose. Also, do financial institutions really want to make money with these High frequency trading systems for clients or are they just generating commission?
I have never gone with the theory of algo trading being a way to make money and the idea, these computers can predict trends is rubbish and so to is the idea of short term trading. No bank or financial institution, using these systems is probably making money in the market but piling up money in terms of fees for there companies.
This book is a good read of the rise of the algo trading myth - but there is nothing in the book in terms of strategies themselves. People are obsessed with computerized trading and beating the market, when its quite clear the market cannot be beaten – The same percentage of traders all lose money and High frequency traders are just trading random moves and not making money from there trading signals.
A Good Book and My View - Improve Regulation!
I saw some comments on this book and two of them are below:
“Richly reported…an invaluable piece of timely journalism that should be read by regulators and anyone with a cent in the stock market...You will never look at the opening bell in the same way.” (Financial Times)
Correct the regulators should be looking at these systems and the financial institutions need plenty of regulation in my view!
“An entertaining account of the key battles in the “algo wars” and the colorful math geeks who fight them—some of whom are now fighting to rein in the monsters they created. Dark Pools is an alarming account.” (Canadian Business)
Rein in the monsters? Pull out the plug would soon control them. The colourful maths geeks? Not really, just a bunch of nerds, trying to beat the market (which they wont) and who will always lose money for clients - more regulation please.
Algo Traders Dont Fall for the Hype
As a Forex trader I really liked this book but sure many people will be in awe of geeks and algorithms after reading it but don't be - you can beat these guys, with a simple long term trading system.
Scott Patterson is also the author of the New York Times best-selling book The Quants and a reporter for The Wall Street Journal, where he writes on the regulation of the financial industry.