Despite the continued proliferation of AI and automation across capital markets, the human element is still integral to ensure efficient trading, say buy-side experts.
Speaking at the Equities Leaders Summit, a macro-focused panel emphasised that while AI can offer many benefits to traders, human traits such as episodic memory and gut instinct cannot be taken for granted.
Specifically, panellists made reference to recent periods of turbulence and market volatility and highlighted that AI and trading technology cannot react to these events in the same way that a human trader can.
Eden Simmer, head executive vice president, global equity trading at Pimco, said: “In a situation where you have large volatility events, the first thing you do is you shut the machine off and you go to the human, because it’s a situation where it’s always going to be the case that humans drive future strategy.
“AI works based on predictive analytics and historical data. But who can predict what, for example, Trump’s going to do next?”
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The speakers also recognised the importance of certain skillsets across trading desks to navigate new AI developments and advancements, and conversations turned to the influx of younger tech-savvy graduates joining trading desks, and spearheading the ‘AI revolution’, with a particular emphasis on how senior traders and members of the desk can navigate this.
For Nick Daniel, head of trading at Redwheel, this again fed back to the value of human insight, specifically, how the relationships built on the desk are essential to overall execution and performance.
Speaking on this, he said: “Senior teams do have the challenge where they’re sitting with more tech savvy traders coming through. But that’s not to say that we don’t have a place and a real value in the relationships we build, and the understanding of market structure. I tend to lean on flexibility within the team and learning new markets as the key to success.”
Working hand-in-hand
While recognising that human oversight is still essential, when it comes to the opportunities that AI can present, panellists were also quick to sing its praises.
The capacity to introduce huge efficiencies to trading desks was a key advantage highlighted during discussions, as was reiterated by Miles Sampson, head of asset allocation research at Franklin Templeton.
“From our perspective, AI is incredibly powerful – it’s been a total game changer. Even something as simple as we get 40,000 emails almost a month on sell-side research. How do you absorb all that? Well, the perfect tool is AI.”
Coinciding with this, Sampson also recognised that introducing AI to workflows has also resulted in casualties along the way, as desks reduce and technology automates tasks, meaning that new skills and more flexible roles are more important than ever to ensure traders can adapt to this fast-changing market.
“Unfortunately, that means my team has gone from about half the size. That might be an asset management margin story, but the big takeaway is that we’re doing more with less and I think we’re just at the beginning of it.”