Will Robots venture into commodity trading?

Computers have already beaten grandmasters in chess, robots have replaced human labour in critical manufacturing areas, super computers have proven its talent in diverse scientific computation and calculation skills beyond the skills of ordinary mortals.

Commodity traders especially those who go beyond Futures and deal with options, credit default swaps, hedging are known to use sophisticated computer systems to calculate the daily mark to market, profit or loss margins as the value of the underlier and the derivative continues to change from day to day.

Even with rudimentary calculus it would be difficult to handle the computation required for cost of carry, forward price, value, opportunity cost of holding a derivative not to speak of technical analysis and other technical paraphernalia. Still we expect the average farmer who should be more bothered with the crop to come earnestly into futures trading or trust their money with a brokerage and simply look at the terminals as details about bid, ask and open interest scroll about.

When writing about options, Michael Durbin writes in his book, All About Derivatives, that “It’s tempting to think one can cook up some brand new strategy to crank out money like a machine no matter where prices go, but all strategies are bound by the laws of arbitrage, so the prospect of creating a money machine becomes remote each day. There are beaucoup well-healed traders out there, with plenty of money to spend on impressive computer systems, allowing them to respond to opportunities at nearly the speed of light.”

A Forex Robot
I read somewhere that forex veterans employ robots with aritificial intelligence to do forex trades which may appear simple conceptually in text books but quite difficult to make or minimize loses in practice.
A new breed of Forex robot , Forex Conquerer was launched on April 22. The company, Forex Trading System says the system has been devised by Brad Cullen, a Forex veteran, which will give decent results to whoever has the money and the inclination to use it.

Created by the combination of a battle-tested mechanical trading system and neuro-fuzzy approaches, this robot virtually ‘thinks’. It is a self-evolving robot and the most advanced in the market.That’s why it’s highly profitable, the company claims in its website. The results are staggering : $17,695.80 in 5 weeks…$63,416.50 in only 3 months… Simply by using a Forex robot such as the Forex Conqueror, the advertisement claims.

Automated FOREX trading is exactly what it sounds like. A highly sophisticated and complicated computer program uses mathematical algorithms to determine when to buy and sell currency, and it makes the trades for you. You put an initial investment into the account, and then let the system do all the work for you.

But the benefits of automated FOREX trading could be great. Whereas manual trading requires an investor to study the market intensely before jumping in to it, automated trading requires no training at all. Learn the very basics of how the market works so you can tell what your automated system is doing for you, and that’s it. Sit back and let it make your money work for you, according to Forex Trading Systems

Automated trading is also useful for companies and other institutions that want to diversify their assets but don’t have the time or resources to devote to FOREX trading. If a computer program can do it for you, there’s no need to have one of your employees handle it, right?

Sure, commodity trading does appear much more complicated than Forex trading in view of the variety of contracts, diversity of commodities, strategies required in different exchanges and markets that it may not be possible for one robot to handle it all. Perhaps we may need an oil robot, a gold robot, a base metals robot with specialized functions to handle the complexity of it all.

Where does the simpleton with a rudimentary calculator or much less a farmer with only his farming skills or the average equity investor who just looks at daily price index movements and takes a decision? Forward Markets Commission (FMC) or any other regulator knows that there is much more to commodities Futures than just volumes or discovering a Futures price. Understanding the complexity of the market is the first important lesson they need to teach prospective stake holders in this segement.