Computer replaces human credit default swap trader.

[ZenOps]

http://business.financialpost.com/2012/11/07/ubs-fires-trader-replaces-him-with-computer-algorithm/

"UBS AG recently pink-slipped its head of credit default swap trading, a position that would have commanded an annual salary of $2-million or more prior to the financial crisis. But instead of bringing in another highly paid human, UBS apparently swapped the fellow for a computer algorithm."

The computer probably uses about $2 worth of electricity per day, even if it does a slightly crappier job than a human, it still more than makes it up in the wage difference.

I for one, welcome our new electronic overlords!

[codetrap]

http://www.thinkgeek.com/images/products/front/lg-go-away-tshirt.jpg

[Mar]

The guy that got fired will probably get hired doing consulting for the company that wrote the program.

[Super_Geo]

Yeah this is happening all over the place... investment banks that serve as market makers for stocks, commodities, bonds, FX, etc have been staffing up on algos and punting humans for the past decade+.

Say you wanted to buy a bond (or oil, or a stock, etc), you go to an investment bank and say "make me a market in XYZ." The ibank then sees where XYZ is trading and will show you a bid slightly below the best bid they see, and an offer slightly above the best offer they see.

So if they see XYZ is $100 bid and $101 offer, they then turn around and show you $99.95 bid, $101.05 offer.

If you're looking to sell, you hit their $99.95 bid, and then then turn around and hit the $100 bid and pocket 5c.

Not exactly rocket surgery, and it's pretty obvious that a computer can do this. So what ends up happening is that instead of having a dozen traders executing for clients and then taking the position into their personal book, you have an algo that automatically makes markets for clients and executes the hedges. Now all you need is one experienced trader to manage the residual position from your algo.

So really, algos are replacing the muppet traders whose can be replaced by any high school graduate anyway. Traders that are affected but not replaced by algos: prop traders, options traders, traders for really illiquid products, etc.

The biggest change is the skill set that people look for when hiring traders. Banks and hedge funds used to look for high testosterone, risk loving guys who would swing for the fences. But now, if you don't have an engineering or computer science degree, you probably don't have the requisite skill set to really succeed.

[Sugarphreak]

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