How befuddling has the process of the U.K. exiting from the European Union been for financial markets? Perhaps, the Brexit insanity can best be encapsulated by a recent Reuters article, which reports that computers designed to trade on Brexit-related news have been flummoxed by the barrage of recent headlines that at times appear to be contradictory.
The Reuters piece says that a portion of the roughly $5 trillion-a-day global currency that has been controlled by computers, which are modeled to watch for key words from media sites about the U.K.’s divorce from the EU and trade off of that information, are being whipsawed by thousands of daily headlines on the subject from the likes of Bloomberg, Reuters and other outlets (including this one).
The Reuters article spotlights the growing use of machine-driven trading on Wall Street that hasn’t just been a feature in the currency markets but also in stocks and other asset classes.
Roughly 85% of all equity trading now is driven by computers using complicated models, or directives to buy or sell assets, according to a December report by The Wall Street Journal. Citing the Bank for International Settlements, Reuters reported that some 70% of all currency trades on the Electronic Broking Services, or EBS, platform, a popular venue for foreign-exchange and fixed-income trading, was via algorithms.
The twists and turns of Brexit may be an ideal case to highlight the challenges of trading on fast-moving narratives for human or machines. Algorithmic trading broadly has long been referred to as the bane of Wall Street, often blamed for sudden and severe market hiccups, including a 2016 flash crash in the pound.
Prime Minister Thersa May’s inability to