Trading With Robots
I highly recommend you listen to this podcast from Planet Money on the story of Thomas Peterffy, considered one of the fathers of high-speed trading.
Peterffy is a genius. He was among the first to use computers to determine the value of stocks, and subsequently execute trades without the need of a human.
It’s hard to grasp now, when 88% of all U.S. adults own a cell phone and 46% of all American adults use smartphones, but Peterffy was way ahead of his time. He actually created a robot to execute trades after learning that regulation required all trades by typed on a keyboard.
His innovation created real social value. Automating trading reduced the cost, saving people money on commissions. It’s reminiscent of what we’re trying to do at Betterment with automation and ease of use.
It’s a nostalgic story too, about an entrepreneurial immigrant from Hungary, finding fame and fortune in the US.
I found it interesting to learn that even Peterffy thinks that we’ve reached a point of absurdity in high speed trading. He believes that the ongoing “arms race” to shave milliseconds off of trades offers no social value and makes the market less stable.
It’s a bit like the technology conundrum we’ve discussed before.
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Markets are frustrating—especially when you look at a year’s worth of returns. Year to year, you can easily experience what we call the pain gap. The key is to not let the pain gap create a behavior gap between your account and market performance.
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Based on our estimation, using Betterment’s retirement recommendations could earn you 38.8% more after-tax money in retirement compared to investing on your own.
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