The Gateway to Algorithmic and Automated Trading

Lab in a box

Published in Automated Trader Magazine Issue 17 Q2 2010

In London, in late April 2010, in the bleak but soon-to-be-Olympic surroundings of the Docklands, an experiment took place that could significantly alter our understanding of how humans and machines interact in a trading environment. Six veteran traders and two scientists met in a small room above a trade show to re-enact IBM’s 2001 contest between human traders and adaptive trading technologies. But that was not all. The scientists were also planning to test something else on the human traders involved. Something new... John Howard, Automated Trader’s CEO, was one of those traders. Here, he tells his story.

Automated and algorithmic trading technology beats human traders every time, doesn't it? Not necessarily. Participating in a trading experiment run by Professor Dave Cliff of the Department of Computer Science at the University of Bristol, Automated Trader CEO John Howard finds that the robots can sometimes be beaten by a human trader with a bad attitude. The trick - for the human trader - is to win by not wanting to win. Irrational? That's humans for you.

This is not necessarily a new conclusion, but there is a vulnerability in an "over-rational" trading environment that leaves it potentially open to a form of malicious gaming. Professor Cliff's experiment is the first of a series designed to examine the contemporary trading experience and thereby potentially identify flaws in our current methodologies. Readers are invited to contribute their views, and indeed to participate in future experiments.

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