The Vast Majority of All Futures Trading Is Now Automated

Illustration for article titled The Vast Majority of All Futures Trading Is Now Automated
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Who’s up for a friendly neighborhood reminder that the global marketplace is underpinned by automated, high-frequency trading to a nearly incomprehensible degree? Good, then—a new report highlights the still-growing dominance of automation in futures markets: For starters, over two-thirds of livestock futures trading is carried out automatically, and 91 percent of all currency futures trading is now done with nary a human involved.


Or, “Automation is the future of futures markets,” as the Financial Times put it in their headline describing the report.

The study was conducted by the market intelligence branch of the Division of Market Oversight of the U.S. Commodity Futures Trading Commission, which examined eight markets overseen by the CME Group—the world’s biggest exchange company—and found that automation now accounts for the vast majority of the share of trades in each.

Illustration for article titled The Vast Majority of All Futures Trading Is Now Automated

Futures trading is the buying or selling of something—oil, corn, gold, etc.—at a future date, at a set price and quantity. Metals futures, energies, financials, equities, grains, and oilseeds—each of these markets is substantially automated. In fact, livestock futures saw the lowest share of automated trades and is the only market examined wherein less than 70 percent of the trades were automated. The study’s authors conclude that “automation has increased consistently” over a six-year period.

Why does it matter if increasingly large amounts of capital are automatically changing hands at speeds of fractions of a second? The biggest concerns are heightened volatility in the markets and overreactions to changing trends in a given market, which the high-frequency trading algorithms can overinterpret, potentially exacerbating a financial downturn.

There have been a few high-profile HFT-spurred shocks to the market thus far, and the fear is that once there are too many systems on autopilot, and they all start responding to the wrong signals, it might cause chaos throughout global markets, affecting the economy accordingly.


In the case of the futures market study, the regulators did observe that “historical end-of-day price volatility was positively correlated with the average number of daily price changes,” but found that no such correlation between automation and volatility was conclusive.

So while automation is continuing to dominate the vast majority of trades in the futures market, it’s still unclear what, exactly the impact of a largely human-free marketplace will be.



Wow a subject matter that I know something about. The nature of my job and documents signed dictate I can’t say where I work but I’m a computer programmer in the field of futures trading.

In the 13 years I’ve been with my firm there’s been a sea change in how orders are placed and to a lesser degree how the orders are created.

When I started, computerized trading was in its infancy and people still made the occasional phone call to a floor trader with the majority of the orders typed into a computer interface. Limit and Stop orders were what you used.

Since then our systems have become more streamlined. First it was placing of orders electronically, still required a user to hit a button for that limit order. Next it was machines hitting the button based upon price information. Now the trading world has split. There’s high frequency guys who buy and sell near constantly using simpler algorithms. There’s long term trend following firms that try to read the tea leaves of the market, figure out which way the wind is blowing, and sail in that direction.

I’m in the long term trend following field. While we don’t make a lot of trades in a day the trades we do make are rather large in their quantity. You can’t just dump 1000 contracts into a future and expect to get a decent price so you turn to algorithmic trading to get the trade done for you. Throughout the session a computer program will make little 1 and 2 lot trades hoping to beat the spread and if things go well get the Volume Weighted Average Price (vwap). These types of trades are considered automated trades for the purpose of this story but the decision to make the trade wasn’t done in a black box as a fund manager reviews the orders before placing them for the day.

TLDR: Saying the vast majority of trades are automated is true but there’s a lot of nuance under the phrase “automated”.