What Investors Should Know About Fintech, High-Frequency Trading and Flash Crashes

#Analytics behind #VirtualReality transforming #WallStreet. Are you prepared?


By Irene Aldridge

You are in an unfamiliar terrain, looking somewhat like a lunar landscape.  Turning around, you observe craters and oddly-patterned star formations.  Your hands are in thick blue gloves.  All of a sudden, you hear a scream – a wild high-pitched tone.  And then you see the source: a three-eyed creature rapidly approaching you.  You panic and respond to the best of your ability: you rip off your helmet and gloves and return to your room.

This is a realistic scenario from a virtual reality video game.  The complexity of the 3-D simulation, aided by multiple data points and, increasingly, sensors from the player’s body, require simultaneous processing of trillions of data points.  The technology is powerful, intricate and well-defined, but also an active area of ever-improving research.

This research easily lends itself into the analytics of modern streaming financial data.  This same technology is also required for modern financial data analysis: in the U.S. alone, there are now 63 trading venues just for equities, and the numbers keep growing every day.  Not processing the data leaves you akin a helpless object in the virtual reality game happening around you – the virtual reality you cannot escape.  Regardless of whether you are a large investor, a pension fund manager, or a small-savings individual, missing out on the latest innovations in the markets leaves you stuck in a bad scenario, the one where taking off the helmet and jumping out of the game is simply not an option.

Why not revert to the old way of doing things: calmly monitoring daily or even monthly prices – doesn’t the market just roll off long-term investors?  As described in our new book, “Real-Time Risk: What Investors Should Know About Fintech, High-Frequency Trading and Flash Crashes” (Wiley, 2017) the answer is no, the market no longer ebbs and flows around long-term investment decisions, and everyone, absolutely everyone, has a way of changing the course of the financial markets with a tiniest trading decision.

Most orders to buy and sell securities today come in the smallest sizes possible: 100 shares for equities, similar minimal amounts for futures, and even for foreign exchange.  The markets are more sensitive than ever to the smallest deviations from the status quo: a new small order arrival, an order cancellation, even a temporary millisecond breakdown in data delivery.  All of these factors are processed in real time by a bastion of analytical artillery, collectively known as Big Data Finance.  As in any skirmish, those with the latest ammunition win and those without it are lucky to be carried off the battlefield just wounded.

With the pension funds increasingly experiencing shortfalls due to poor performance and high fees incurred by their chosen sub-managers, may individual investors face non-trivial risks.  Will the pension fund inflows from new younger workers be enough to cover liabilities of pensioners? If not, what is one to do?  At the current pace of withdrawals, many retirees may be forced to skip those long-planned vacations and, yes, invest in a much-more affordable virtual reality instead.

In the end, it’s all about Big Data.  How you use it, is up to you.

Irene Aldridge is a co-author of “Real-Time Risk: What Investors Should Know About Fintech, High-Frequency Trading and Flash Crashes” (Wiley, 2017).  She is President and Managing Director of Research at AbleMarkets, a Big Data for Capital Markets company.  She can be seen on May 19, 2017, at Big Data Finance Conference 2017 at NYU Center for Data Sciences, New York, NY.  Please follow Irene on Twitter by clicking on the following link:



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