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traded . If something were to go wrong in the execution process , AI is able to notify traders that something is not right and can help stop that specific trade from executing .
“ AI is essential for this problem domain because it ' s difficult to capture all possible outliers using simple rules , but AI can even spot complex outliers in seemingly conforming individual data units that collectively represent an outlier ,” notes Miles Kumaresan , founder and chief executive of Wavelabs .
However , Kumaresan reemphasises the need for AI to be based on accurate , useful data . “ A neural network is just a sophisticated statistical engine . Its magic comes from its ability to identify levels of abstract relationships between a set of inputs and the associated target dataset . AI ’ s performance is not so much defined by the large amount of data it uses , but about learning from the representative dataset . Finding the representative dataset is a challenging task and is essential for the AI ’ s prediction accuracy , and to avoid unwanted biases and surprises .”
For firms managing large flows , automation solutions are essential to help desks execute low touch flow . AI is able to assist traders when assessing whether resources need to go into a specific trade and whether it is something that a human trader needs to see . However , it is important that appropriate barriers are set to make sure traders are able to catch everything that needs human intervention .
“ You don ’ t want to have situations where a trade that needed manual attention has gone through for automation because the rules are too simplistic .
You also don ' t maximise your opportunities for automation using that type of rigid , parameter-based approach ,” adds Coltman .
“ AI can be used to make a better , more finely tuned decision about what needs to end up with a human trader , and that really is going to allow you to maximise how much benefit you are getting from automation and able to tweak that efficiency to the maximum possible level .”
The evolving role of the trader As with any new introduction and evolution to the trading desk , things have to adapt . AI has the potential to elevate the trading process , reduce the amount time spent on trades that could be automated and also help traders make more informed trading decisions . However , the role of the human trader remains vital , as AI has not reached a point where trading flows do not require managing and monitoring .
Financial markets , as we see repeatedly , are very complex . Traders and market practitioners still hold an edge by being able to provide a real view on context . Although the role of the trader is shifting , AI is far from being a human replacement .
AI requires a high degree of care when implemented . However , the benefits that AI can provide to fixed income markets should be taken into account when developing new trading strategies .
“ This shift doesn ' t diminish the importance of traders but redirects their expertise ,” notes Heleine . “ For complex execution or bundle multi-asset execution , the trader will be equipped with richer insights and predictions . This empowers traders to make more informed decisions , rapidly respond to market shifts , and identify opportunities or threats that might have previously gone unnoticed . As AI constantly evolves , traders must continuously update their knowledge to effectively harness the latest technological advancements in the market .”
“ AI can be used to make a better , more finely tuned decision about what needs to end up with a human trader .”
GARETH COLTMAN , GLOBAL HEAD OF TRADING AUTOMATION ,
MARKETAXESS
38 // TheTRADE // Q3 2023