Every time some genius comes up with some new technology, some other geniuses find ways to use that tech to make people more money. That is just the way the world works. Which is why it’s not surprising that deep learning is making a lot of money for some big players in the stock market. If you think of it, it was only a matter of time for that to happen. Don’t believe in that? Then ask yourself this question: What would most people do if they could use a tech that could predict behaviors and patterns? But how does deep learning work exactly? Read on.
To figure out how deep learning predicts market behavior, we need to understand what the ‘quant firms’ are. These firms have quantitative analysts who earn top dollar because their job to research and figure out correlations between world events, news, etc. and figure out a chain of cause and effect. Now, most of these correlations are weak ones, but the scale at which these players play, ensures that even the weakest of correlations can swing the flow of hundreds of thousands of dollars, if not millions, at any given time.
But like in any other technology, the key is to stay ahead of the curve and that means, only the firms that act extremely quickly on these correlations stand to make a respectable amount of profit. That’s where the low latency of deep learning comes in. These quant firms optimize their strategies and tools for speed, which means the machine learning processes they use, have to be extremely simple. These firms use programs that conduct automatic trades based on learnings gathered from a continuous flow of real time data. It could even be something as simple as keeping a track of positive news stories about a brand or a name.
Sometime last year, a blogger noticed that the share values of Berkshire Hathaway spiked every time the actress Anne Hathaway trended on news and social media. Most likely it happened because the programs keeping track of online behavior under the name ‘Hathaway’, triggered an automated trading response any time online chatter about the actress increased. While that story can also be used to point out how there are some flaws in the system, Berkshire Hathaway still made money. In the end, isn’t that what matters the most?