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Surprising Science

Quant Trading or How Mathematicians Run the World

Investment decisions are no longer being made by financiers, but increasingly by Ph.D. mathematicians and the immensely complex computer programs they devise.

What’s the Latest Development?

Once the purview of obsessive traders, financial markets the world over are increasingly controlled by algorithmic trading formulas that buy and sell large volumes of stock automatically. Developed by some of the world’s leading theoretical mathematicians, these formulas operate using triggers which allow large quantities of shares to be held for just a few seconds before being sold again. At least 15 percent of all equity trades in the U.S. are executed using these quantitative trading programs. 

What’s the Big Idea?

The elimination of the human element from stock trading is both welcome, given the greed and insider trading of late, and frightening, as exhibited by the Dow Jones’ flash-crash of May 2010 when computers automatically sold off $700 billion. Scott Patterson, a Wall Street Journal reporter, says that quantitative trading programs increase market volatility: “I’ve seen too many instances during the recent sell-off where a sudden spurt of frequent trades has sent share prices bouncing down.” He says automatic trading already motivates almost everything on Wall Street. 


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