There is a view commonly held that a computer working in association with a human can outperform a computer on its own. If that is right, it is good news for those who work in the high frequency trading business, as it means their job is less likely to be replaced by a machine.
But is that right? Up until a few years ago, it was clear that a human plus computer working in concert performed better at chess than a computer. But this may be changing. According to Professor Kenneth Regan, a computer chess expert from the University of Buffalo, some of the best chess games of all time were played by a human computer combination. But according to the Rybka Chess Community Forum, this may be changing, and there is a danger that the human part of the human/computer relationship may become a weak link, slowing the machine down. See humans are on the verge of losing one of their last big advantages over computers.
So what has this got to do with high frequency trading?
Tony James, Chief Operating Officer of Blackstone, recently said: "Frankly, we expect to see assets move from human managers to machine managers." But in a recent blog for Bloomberg, Matt Levine draws a line between quant fund and long-short hedge funds using quantitative analysis. He says: "The question... is whether investing is more like chess, where human/computer teams are better than either humans or computers alone, or more like driving, where giving humans control over robots just destroys all the benefits of having the robots in the first place. Maybe human investors' common sense and gut instinct and feel for the market is a helpful check or enhancement on the robots blind allegiance to their algorithms. Or maybe humans are panicky and irrational and will mess up the computers' brilliantly logical plans."
He asks a good question, but if computers are soon going to be able to outperform a human and computer working together in chess, maybe the age of humans controlling high frequency trading is coming to an end too?