A Conversation On: Algorithmic Trading

RECIPE FOR DISASTER: THE FORMULA THAT KILLED WALL ST
Felix Salmon | Wired | February 2009

Then the model fell apart. Cracks started appearing early on, when financial markets began behaving in ways that users of Li’s formula hadn’t expected. The cracks became full-fledged canyons in 2008—when ruptures in the financial system’s foundation swallowed up trillions of dollars and put the survival of the global banking system in serious peril.

ALGORITHMS TAKE CONTROL OF WALL ST
by Felix Salmon and Jon Stokes | Wired | January 2011

Algorithms have become so ingrained in our financial system that the markets could not operate without them. At the most basic level, computers help prospective buyers and sellers of stocks find one another—without the bother of screaming middlemen or their commissions. High-frequency traders, sometimes called flash traders, buy and sell thousands of shares every second, executing deals so quickly, and on such a massive scale, that they can win or lose a fortune if the price of a stock fluctuates by even a few cents. Other algorithms are slower but more sophisticated, analyzing earning statements, stock performance, and newsfeeds to find attractive investments that others may have missed. The result is a system that is more efficient, faster, and smarter than any human.

MAN vs MACHINE ON WALL ST: HOW COMPUTERS BEAT THE MARKET
William D Cohan | The Atlantic | March 2011

Wall Street, meet your post-human future. Uber-”quant” Cliff Asness bets that his high-speed computers and trading models can churn billions of dollars in profits in booms and busts alike. But can artificial intelligence really out-smart the market? 

5/12/11 – Update:

HOW TO MAKE MONEY IN MICROSECONDS
by Donald MacKenzie | London Review of Books | May 2011

What goes on in stock markets appears quite different when viewed on different timescales. Look at a whole day’s trading, and market participants can usually tell you a plausible story about how the arrival of news has changed traders’ perceptions of the prospects for a company or the entire economy and pushed share prices up or down. Look at trading activity on a scale of milliseconds, however, and things seem quite different.

Any must read books on this topic?