Guerrilla, Sniper, Sumo... Have you ever heard of these financial terms? Yet they refer to financial algorithms that influence your life. Welcome to the hidden world of digital finance!
If you still imagine that the stock market is this place with people raising their hands to buy shares, all shouting louder than their neighbors, you are wrong. Like everywhere else, finance has become digitalized, radically changing the stock market scene. On March 23, 2020, because of Covid, there were no brokers on the New York Stock Exchange.
The quotations were fully automated for the first time since its opening in 1792. And since then, robots continue to take over human beings. Why? They are faster, more reliable, more profitable and cheaper.
Robots are already responsible for 70% of the world's transactions and account for up to 40% of the value of all trades. The most sophisticated computerized trading tools are called "quant funds", different from those based on human intuition. Blackrock has one of the best quant funds, called "Aladdin". It manages $15 trillion in assets or 7% of the world's assets.
I still believe in a digital world that catalyzes investment in more sustainable and responsible projects and technologies.
The lure of profit is such that the world's largest financial players are installing their servers as close as possible to the main fiber optic cables carrying stock market data. The closer they are to the telecommunication networks, the faster they can access the information.
Let's go back to our Guerrilla, Sniper, Sumo. Some of these algorithms belong to large Swiss banks. Their objective is to unmask the investment strategy of other banks' algorithms. Why then the term "Sniper"? Because it is about shooting at other algorithms - buying and selling stocks at very high speed - and analyzing how they react. This makes it possible to predict the future behavior of other algorithms.
Finally, what about the environmental impact of cryptocurrencies? In 2021, according to the Cambridge Center for Alternative Finance observatory, bitcoin's energy consumption was estimated at just over 93 TWh. That's 0.42% of the planet's overall consumption. Is this low? Too much? You be the judge. My opinion? Digitized finance is neither good nor bad. It depends on how it is used.
I still believe in a digital world that catalyzes investments toward more sustainable and responsible projects and technologies. But as Stephen Hawking said: "Our future is a race between the growing power of our technology and the wisdom with which we use it. Will finance be able to couple growth, sustainability and wisdom?
Text originally published on Arc Info
