Successful animal systems often manage risk through synchronous behavior that spontaneously arises without leadership. In critical human systems facing risk, such as financial markets or military operations, our understanding of the benefits associated with synchronicity is nascent but promising. Building on previous work illuminating commonalities between ecological and human systems, we compare the activity patterns of individual financial traders with the simultaneous activity of other traders—an individual and spontaneous characteristic we call synchronous trading. Additionally, we examine the association of synchronous trading with individual performance and communication patterns. Analyzing empirical data on day traders’ second-to-second trading and instant messaging, we find that the higher the traders’ synchronous trading is, the less likely they are to lose money at the end of the day. We also find that the daily instant messaging patterns of traders are closely associated with their level of synchronous trading. This result suggests that synchronicity and vanguard technology may help traders cope with risky decisions in complex systems and may furnish unique prospects for achieving collective and individual goals.
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Thursday, March 24, 2011
The symphony of trading.
Uzzi and colleagues have made an interesting observation. You might think that a gaggle of financial traders on a large exchange floor, who make on average about 80 trades a day, would collectively generate orders with no particular time structure. A 7-hour working day is roughly 25,000 seconds, so the chance of one employee's 80 trades randomly synchronizing with any of his colleague's is small. Uzzi's group, to the contrary, found that up to 60% of all employees were trading in sync at any one second. What's more, the individual employees tended to make more money during these harmonious bursts. Here is their abstract:
Posted by Deric Bownds at 4:30 AM
Blog Categories: acting/choosing, culture/politics
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Could it be that it is a consquenze of prior information only?ReplyDelete
"High quality" information will be recognized as such by more participants in the company and as such should lead to synchronization and in the consequenze to better results.
That's a very interesting observation. I like how you described the synchronization of a certain employee's trade with any of his/her colleagues.ReplyDelete
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The abstract explains it all. Now I understand how it works with the employees. Uzzi definitely made an interesting observation.ReplyDelete
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Perhaps the synchronization lies in similar speculations in market movements and volatility, collectively making individual decisions to either move in or out of trades. "60% of all employees were trading in sync at any one second."- This might seem hard to believe, but it happens on a major scale (it seems) on certain professions.ReplyDelete
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