Power: what role for humans in tomorrow's trading?

Behind this somewhat provocative title hides a reality: faced with recent market developments (data flood, AI, automated trading etc.) what will be the role of traders in the coming years? Some see them disappearing but we believe the contrary: their role will be reinforced.

Before discussing the role of a trader in the futur, let’s remind the profound changes experienced over the last ten years. The electricity markets, which emerged in the late 1990s, are young compared to those of other commodities. However, there have been two major historical changes since their emergence:

The renewable boom. It did not only bring an increased volatility: the number of players was multiplied, which mechanically reduced the weight of the historical players. At the beginning of the 2000s, the market was shared between a few – large – investment banks and utilities. The renewable growth saw the emergence of many medium-sized players, very active on the markets, with need for 24/7 optimisation.

The REMIT directive, which has been truly effective since 2015, has put an end to a form of competitive advantage enjoyed by the historical players. It was then a true avalanche of data that overwhelmed the market and reshuffled the cards for all the players.

More volatility and more transparency: a trader’s paradise?

Things are not that simple. Perfect and transparent information (which is still highly theoretical) generates an identical view for all the players and, in fact, very rare opportunities. That means having  data  is no longer enough to gain a competitive advantage. The data flow is so big and imperfect (or of uneven quality depending on the country) that it is necessary to know how to sort it out and exploit it more quickly than the other players in order to have a chance of “beating” the market.

The market has become so complex and interconnected that it is almost impossible for a human brain to grasp it without outside help. Meteorology, market prices at 15-minute intervals, interconnection parameters… today, tens of thousands of data points flood the market every day.

But then, will traders be replaced by machines?

At COR-e we use artificial intelligence on a daily basis, and yet we think otherwise. We measure the great strengths and weaknesses of AI, without claiming to master its most pointed or complex mysteries, of course, but we have one certainty: artificial curiosity does not exist. It will probably never exist. 

If access to data is already an obligation, tomorrow’s trader will have to master the technological tools to avoid missing any relevant information that could alter his vision. He will have to, and this is the positive point of this revolution, allocate his time a human privilege : curiosity!

Then, he or she will need to fully master the tools, and know their strengths and weaknesses well enough to use them wisely. There is no perfect model, the trader of tomorrow will remain a risk manager but will also more than ever have to be a creator, a generator of ideas and strategy which will have to be renewed very frequently.

Technology knows how to provide signals, but only humans know how to interpret them: when to listen to them, and  – more important – when to ignore them.