Robot Trading Takes Over From Humans 1
http://www.theatlantic.com/technology/print/2011/05/on-the-floor-laughing-traders-are-having-a-new-kind-of-fun/238570/

On the Floor Laughing: Traders Are Having a New Kind of Fun

By James Somers

The modern trader is playing the most sophisticated, dynamic, immersive game in the world.
Here's how it works -- and why your job might be the next to turn into a massively multiplayer
experience.

It's just past noon on a Friday and I'm on the fourth floor of a skyscraper in lower Manhattan
watching numbers rise and fall. The place is teeming with them--numbers by the screenful,
screens everywhere you look -- but I've been told to pay attention to just one in particular,
and what's really important is that I'm supposed to say something if it goes above 1,238.
I'm not yet sure why.

I'm here to watch my roommate work. I realize that might sound insipid, but my passive
curiosity about his job -- he trades complex equity derivatives for a "bulge bracket" bank --
has metastasized over this past year into something closer to devastating envy as I've seen
him come home, day after day, buoyant and satisfied. I need to know what the hell goes on
down here. I need to find out why, of all the fledgling professionals I know, he seems to be
the only one genuinely delighted to go into the office every day.

Quickly you get the sense that something strange happens in this room. There must be three
hundred people within eyeshot, all but a handful of them healthy, handsome, well-dressed
men in their mid-twenties or early thirties. (My friend points at various colleagues around the
room: "Triathlete; runs marathons; hardcore cyclist; marathons; marathons..."). They look less
like they're working -- reading e-mails, say, or putting together a slide deck -- than calmly
responding to a crisis. Maybe it's because they're wearing headsets and their heads are
darting from screen to screen the way lizards' do and their keyboards are unusually colorful
and they're talking fast like Aaron Sorkin characters in an incomprehensible argot as
streaming real-time line charts flicker loudly in their faces. It's like a mission control center.

They're packed in pretty tight. Workstations are aligned in blocks of twenty, two facing
columns of ten each, guarded by the dancing backs of ergonomic swivel chairs. It's a bit of a
shambles to navigate, but no matter, hardly anyone stands up. The market is a fickle
leviathan, after all, and its keepers don't like to leave it unsupervised. Hence all the takeout.
And hence the way my roommate falls asleep (early, instantaneously). These guys are at it --
glued to their desks, mentally engaged--for six and a half hours straight.

The upshot is that there is a lot of energy on a trading floor. Go to a law firm, Silicon Valley
startup, magazine, or corporate headquarters. Even if what they do there shakes the world,
even if the staff practically sneezes vibrant creativity, still you can't escape that Office-y
undercurrent, the unmistakable intimation of malaise you find wherever adults are stuck
inside doing their homework. This place, on the other hand, feels like something closer to an
active battleship.

I'm starting to think it has something to do with the computers. From far away each station
looks like one of those extravagantly immersive arcade games -- like something you get into
rather than sit down at. That's probably why I keep calling them "stations."

My friend's has six distinct screens. They're arranged as a row of two above a row of four in a
bowed-out fan pattern that looks basically like a robotic sail. I'm told that this array is driven by
three machines, each with a preposterous eight CPU cores. Maybe he needs them -- at the
moment he has forty-four windows open. These include a Bloomberg terminal with prices,
news, charts, and analytics that all update or redraw themselves more than once per second;
several small forms for buying and selling different kinds of securities; some PDFs ridden
with legalese; e-mails with long, redundant subject lines and laconic bodies; a bare bones
programming IDE; a dashboard that shows his "book," or set of open market positions, with
stats regarding risk and the like; some very intimidating spreadsheets; chat rooms, IM
conversations, and the occasional video conference; a custom program to query internal
databases; and miscellaneous browser windows. It all runs snappily.

Beneath the screens he has something called a turret, which is like a regular human
telephone except that it has sixty active lines and a button density close to what you see on
studio sound boards. Among other things it includes the option to broadcast its user's voice
over the room's loudspeaker; this feature has apparently been used of late (though not by
my friend) to share Rebecca Black's "Friday" with the entire floor.

The all-in costs for a setup like this -- hardware, software, and data subscriptions -- come to
about $200,000 per year.

I'm feeling small when that number I was supposed to keep an eye on ticks to 1239. Excited,
I look over to my friend as if to ask, what now?, and he says, "I have to buy $60 million worth
of S&P futures." Which he does in about four seconds. Which he does as though wildly
unreasonable sums of money weren't involved.

I think it's worth dwelling on this for just a minute. I think we're tempted to treat $60 million as
not all that big of a deal, especially in the midst of an economic crisis involving sums literally
five orders of magnitude larger. There is even a way in which being unimpressed by tens of
millions of dollars is itself kind of impressive -- you come off like one of those rich guys who
guesses the price of a beautiful house by saying "six or seven," as though anything less than
a few mill might as well go on the far side of a decimal point. It tickles the ego a bit, is what I'm
saying, to act natural around such indisputably absurd piles of money. Which is exactly what
I'm doing as I watch my high school pal carefully, but casually, in his overlarge suit, put in an
order for sixty fucking million actual American dollars.

You can see why a young guy out of college might get a kick out of working here. (And why a
Phi Beta Kappa who studied physics and neuroscience at Harvard might have had a hard
time getting in the door.) Imagine the psychological impact of having that kind of money and
machinery at your fingertips. You must feel powerful. Too powerful, even, like a young pilot
who's just been given the keys to his first F-35 Lightning II tactical strike fighter. A mixture of
relish and trepidation.

Yet for all that I'm still unclear as to what my friend does, exactly, besides clicking buttons
when one number gets bigger than another number.

He puts it this way: customers -- hedge funds, pension funds, insurance companies, rich
individuals and so on -- come to him via a sales team demanding a very specific payoff
function. A typical request usually involves a complex combination of rules and triggers,
say, "We want a monthly stream of 12% returns as long as price X stays above 95, a
downside no greater than Y, and a coupon of 120% of the principal in the event that A, B,
and C all happen on or before the close of trading on April 11th." His job is to use math and
intuition to figure out an appropriate price for that payoff function, and when the terms are
settled, to make trades that satisfy the customers' constraints.

Trouble is, every time he does that he puts the firm's capital at risk. To manage the exposure
he has to find a countervailing hedge: a set of miscellaneous financial instruments, like
equities, options, futures, or others more exotic, that when combined approximately neutralize
the original trades. He spends the bulk of his working day solving puzzles like that, trying to
maintain a kind of homeostasis, avoiding any serious risk while making money with a little
edge baked in here and there.

Of course it's hard to see things at that level when you actually watch him work. What stands
out instead is a whole lot of fine-grained maneuvering: flitting from an open chat window over
to a spreadsheet to run quick scenarios based on a new idea; backing off from a trade to see
where his risk is at for the day; tracing counterfactuals ("if I do this and the market does
this and I do this..."); catching a position on the verge of a critical price, diving into "crisis
mode" for two minutes, eyes fixed on a few specific numbers, poised to react with a chord of
contrapuntal trades; leaning back to watch the market for certain thematic trends; shouting to
one of the senior traders on his desk when he's confused about something; blocking half an
hour to drill down into the details of a contract's code; working out a low-level tactical "line";
jotting quick calculations and graphs; executing a series of rapid trades, running through a
mental checklist to avoid mistakes; kibitzing with colleagues; responding to e-mails; eating;
and keeping an eye on the news.

He says that his attention span has shortened but that in return he's picked up two abilities:
broad situational awareness, i.e., the ability to juggle lots of disparate facts in working
memory; and the pre-scandal Tiger-Woodsian knack for blocking out distractions when
something big is on the line.

The more I watch, the more I think I understand the peculiar grip this place has on him -- and,
for that matter, the peculiar grip it seems to have on me. From the minute I walked in here I've
been sort of dazzled. I've felt almost exactly like I did when I was first invited as a nine or ten
year-old into the cockpit of a commercial airliner. There is just something undeniably cool and
complicated and a little bit spectacular about both places, each in its own way the frenetic
nexus of an intricate machine. It looks fun, basically -- in the one case because you get to fly
a plane, and in the other because people take you seriously and pay you lots of money and
yet what you do all day is qualitatively equivalent to playing a video game.

If that sounds a bit silly, consider for a moment what makes a game a game.

The trick seems to be that games are constrained in a way that the real world isn't: there is a
board, field, pitch, court, area, table, ring or other enclosure that bounds the action in space;
clocks that bound it in time; and rules that restrict the space of allowable moves.

In some ways those constraints are what make games mentally satisfying, because they
relieve us of what existentialists called "the anxiety of freedom." By giving us obvious,
well-defined goals, they save us from having to define success; and with points,
leaderboards, heads-up displays, indicators, badges, etc., they tell us exactly when we've
achieved it.

Humans crave that kind of structure, probably because we get so little of it in real life. It's a lot
harder to say whether you "have a healthy romantic relationship" or "are making a lasting
contribution to something bigger than yourself" than that you've "lined up the yellow
gemstones," "scored more points than the other team in twenty minutes," or "collected forty
pounds of silver."

Think of the pleasure we get crossing things off lists, the thrill of reaching "inbox zero" or
finishing a book. We want to accomplish things and, maybe more importantly, we want to
know that we've accomplished them.

Games (and video games in particular) exploit that essential insecurity. They're engineered to
unfold as a series of short feedback cycles, every action a small experiment that concludes in
minutes, if not seconds, with concrete consequences: you either win or lose points. That vivid
loop keeps you constantly engaged. It sucks you into the micro-mechanics of the game,
because even the smallest maneuvers give you the feeling of "getting somewhere." You can't
help but tweak, tweak, tweak your way up the game's learning curve, an eye always on your
rising score.

Now think of what a trader does. A trader's job is to be smarter than the market. He converts a
mess of analysis and intuition into simple bets. He makes moves. If his predictions are better
than everyone else's, he wins money; if not, he loses it. At every moment he has a crystalline
picture of his bottom line, the "P and L" (profit and loss) that determines how much of a bonus
he'll get and, more importantly, where he stands among his peers. As my friend put it, traders
are "very, very, very competitive." At the end of the day they ask each other "how did you do
today?" Trading is one of the few jobs with an actual leaderboard, which, if you've ever been
on one, or strived to get there, you'll recognize as being perhaps the single most powerful
driver of a gamer's engagement.

That seems to be the core of it, but no doubt there are other game-like features in play here:
the importance of timing and tactile dexterity; the clear presence of two abstract levels of
attention and activity, one long-term and strategic, the other fiercely tactical, localized in
bursts a minute or two long; the need for teams and ceaseless chatter; and so on.

Not to mention that the whole job takes place indoors in a kind of software cockpit driven by
people sitting in a climate-controlled room staring at screens scrabbling away on colorful
complicated keyboard controllers.

Mind you, the game the traders play is nothing like Mario or Zelda or Megaman. It's not a
shoot-em-up or racing game. What it is is more like Starcraft or maybe TradeWars: an
intense, cerebral, massively multiplayer real-time strategy game. It's a game grounded in
information: prices, mostly, but also all kinds of news and rumors and oblique signals,
whether by way of balance sheets or CNBC. It's the kind of game that requires the player to
immerse himself in data, distill from it a sort of strategical gestalt, and convert that high-level
battle plan into a series of discrete maneuvers, in this case trades on the open market.

The difference here being, of course, that it's all real.

A trader's interface may be remarkably abstract, but in this game the points matter.
Somewhere down the chain--somewhere far down the chain, maybe, but there nonetheless--
a trader's clicks and keystrokes become redeemable as actual pork belly or oranges or oil,
as mortgages and savings and pensions. Bits become dollars and dollars become stuff.

That basis in reality changes everything. It means that those flickering prices my friend so
closely attends to are not just big, but bloody, too, alive in a way that a gamers' aren't, by
virtue of being grounded in the big-ticket wants of real fleshy people. They have a soul
behind them--or if that sounds hollow, a will. The pulse of the invisible hand.

The data a trader plays with, just by virtue of being connected to significant amounts of actual
people's money, has a depth to it--gravitas --and a kind of genuine dynamism that can't be
programmed.

Not for lack of trying: the hackers who develop games like TradeWars go to insane lengths to
simulate, say, the rates at which various resources deplete on different planets -- they need to
understand how the price of lumber reacts to average rainfall, demographics, seasonal
logging activity, prevailing trade routes, etc. They'll spend days in a library reading about
the types of food that nomadic peoples ate, and how much they stored each winter, just to
know how many "nutrition points" they should award for different kinds of in-game meat. They
try, in other words, to capture as much as they can of the dynamics driving our world, not for
the sake of verisimilitude itself, but because it just so happens that the "realer" things are the
more fun players seem to have. Actual healthy economies and climates have a balance that's
hard to capture in a few hundred thousand lines of code.

On the one hand you might call the trader's game a simulacrum, an ersatz replica of, say, the
sort of kinetic corporeal bazaar you'd find in the midst of the Roman Forum. But in spite of its
abstraction it delivers. It finally exceeds the player's expectations; it's an answer to years and
years of video games that gestured toward authenticity but always fell short. Trading in the
way my roommate trades is not just neat and dynamic but weighty, too, perhaps even more
full of significance than its erstwhile counterparts. The very same forces that seem to enfeeble
it -- chiefly the fact that it's all computerized -- are in fact responsible for the acceleration of
the profession's metabolic rate to the point where it's now more active, more rich with data
and decisions and dollars, than it ever was.

What I want to say, then, is that trading equity derivatives is like playing a game written by
programmers who got every mechanic exactly right. You might balk: "Of course they 'got it
right' -- trading feels real because it is real!" But when you think about the bizarre
circumstances of these electronic trades -- how they're simultaneously rooted in significant
human commerce and yet so far abstracted from it -- and when you see your friend drag and
drop real fortunes the way I might crop a Facebook photo, you come to believe that working
on a modern trading desk is more like playing an excellent flight simulator than actually flying
a plane.

My guess is that Moore's Law will do this to more and more jobs. Think of Predator missions
in Iraq being controlled by joysticks in Southern California, or oil reserves being fractured and
drilled by remote control. Maybe we're entering the age of Ender's Game, a science fiction
novel by Orson Scott Card in which students are trained to become military commanders via a
series of increasingly elaborate wargames, the most advanced of which turn out to have been
real all along. You can go to war and keep your hands clean, enjoy synoptic control of a
complex adaptive system from the comfort of a chair.

It's a new -- and potentially dangerous -- brand of fun.


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