The world of trading has never been a level playing field. Ordinary traders have always lost out to big firms and the super-rich.
Of course, some degree of that is inevitable. It’s even easy to dismiss — resource allocation means the rich and powerful will have an advantage. And, of course, there will always be some level of inequality in the industry.
However, with automation and the founding of NASDAQ in 1971, this gap has grown into a chasm. Automation is responsible for so many powerful benefits that it’s completely changed the trading world, taking those who can harness it into a different league.
That means, of course, that those unable to access automation end up being relegated to a lower level of trading. Stuck relying on manual trading and inferior technology, they simply can’t compete.
And while Bitcoin (BTC), Ethereum (ETH), and other coins are ostensibly for the masses, large scale traders are beginning to dominate these markets as well.
The last thing we want to see is institutional grade firms entering this space, with expensive front-running algorithms once the markets have matured. Similar to what happened in Wall Street. We need algorithmic trading to be available to everyone, starting from markets where legacy equity positions are yet to be dominated by automated trading.
The question is, can that ever change? Will ordinary, ‘average Joe’ traders ever see the day where they can access automation like the wealthiest firms and finance moguls?
In fact, there are plenty of movements currently taking place which aim to make trading more accessible to everyone. Alphanu’s SaaS marketplace is one example, and there’s a growing appetite for this.
The firm currently operates only on commodity trading, however, they are potentially looking into offering an algorithm for legacy equity position as well as for cryptocurrencies in the futures.
The Barriers to Automated Trading
As with so many things, money is the main obstacle standing in the way of most traders when it comes to automation. Big firms are able to pay talented developers to build algorithms for them and even hire their own teams of cutting-edge coders who can develop tailor-made algorithms to trade effectively.
With these, they’re able to trade in a way that circumnavigates human error, makes use of effective tools like backtesting and stop losses, and delivering a smoother and more efficient approach.
The spending doesn’t end with developers, though. Only a decade ago, a group of the biggest Wall Street firms paid a collective $2.8 billion to build a giant fiber-optic tunnel, measuring 827 miles, from Chicago to New Jersey. The goal? To reduce communications times between the two cities to 13 milliseconds.
This, in turn, enabled high-frequency trades, or HFTs, where firms are able to essentially undercut their competitors by using lightning-fast bots to place orders in fractions of a second, gaining a devastating advantage over manual traders.
The money being pumped into automation is staggering, and these monolithic firms have access to resources and wealth that normal traders couldn’t dream of. It can seem hopeless like the battle is already lost.
But could there be a solution on the horizon?
Helping Everyone Access Automation
The cloud and other emerging tech could be the answer. Alphanu is just one example of a company trying to bring more fairness to the world of automated trading by giving average traders the means to compete with the big players.
In their SaaS marketplace, developers are able to work directly with traders, selling algorithms directly without the need for a powerful corporate middleman.
And unlike current models where developers sell cookie-cutter algorithms with no input from actual traders, Alphanu’s model draws in the expertise of real Wall Street commodity veterans to produce algorithms that have been successfully tried and tested on the front lines.
This allows normal, average Joe traders to access some of the tools that big firms benefit from, and makes big strides towards a fairer trading ecosystem. Plus the company will offer algorithms for legacy equity positions as well as for cryptocurrencies.
Technology: A Tool for Equality?
As technology advances, it’s going to become more and more important to bridge that gap between the super-rich and everyone else. If we’re not careful, the tech could open a gulf between ultra-wealthy corporations and ordinary people.
In fact, we can already see that happening in the financial industry — for example with J.P. Morgan investing $9.5 billion into a tech budget which will largely be focused on automation and robotics.
Of course, technology can also be a great equalizer, and help deliver fairness. The industry needs to ensure that the advantages of tech can be available to everyone, regardless of their wealth or status.
